NZD/USD tests important support levels
NZD/USD has been in a sideways range throughout most of March and all of April, so far. The daily chart below in fact shows much of a sideways trend since mid-November. This is unfortunately quite a theme in many of the financial markets at the moment.
The current environment is very difficult for trend-following funds. It also makes my job harder in trying to find interesting trade setups each week for my articles!
The March low at 0.6887 broke yesterday, but we haven’t quite reached the December low at 0.6859. Yesterday we bottomed at 0.6868. Bulls will need to ensure the pair holds above the 500-day moving average (the green line above) at 0.6885/0.6890 if they are to engineer a bounce from these recent lows.
The weekly chart below is also showing some important support in this area. The blue 100-week moving average line at 0.6890/0.6880 has been tested. This also lies just above the long-term 23.6% Fibonacci support at 0.6847.
You can see from the chart that a rally started in the third quarter of 2015. This move lasted one year with a high in the same quarter of 2016. A 50% retracement of such a move is often regarded as an important level. In this case, that level is at 0.6859.
So you can see there is a significant amount of support in the 0.6890/0.6847 area. Note how we are significantly oversold on the slow stochastic at the bottom of the weekly chart.
This could therefore be strong enough evidence to try a long position when combined with the 500-day moving average and support from the December low at 0.6859. Look back at the weekly chart above and you will see the upward-sloping bull trendline. This starts in the third quarter of 2015, joining the low in January 2016. This level comes in now at around 0.6795/0.6785.
Bull trading strategy
Bulls must therefore defend this trendline as a last resort, and you would wish to place your stops somewhere below here. Being a longer-term chart, you need to give it a decent margin of error. So I personally would have a stop below 0.6750.
With a risk of up to 150 pips, we need to be sure that the reward is worth it. In the short term, we have a first target of 0.6920, so a move above here would get the ball rolling for a recovery towards one-year trendline resistance at 0.6970/75. This area is going to be a problem for the recovery and only represents a potential profit of 100 pips, so not really worth the risk.
For the trade to be worth the risk we need a recovery to at least this week’s high of 0.7050. But this would only offer a one-to-one risk vs reward ratio with a potential profit of 160 pips. For this longer-term trade to be truly worthy of the risk we will need to see a push up through the 100-day moving average at 0.7065. This would then target the 200-day moving average at 0.7130.
Technical Analyst & Trader
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