New Zealand Dollar Bearish Set-up

The New Zealand Dollar saw a 36.70% rally from it's March 2020 low into its February 2021 high.  However, this market has lost 6.9% since and is setting up for a potential downside breakout.  The daily continuation chart shows an ABCD pattern developing off its 5/26 high.  The retracement of this pattern is less than 50%, which is bearish.  A move below 0.6921 triggers the pattern.  If the pattern triggers tomorrow, then it will be 11:3 right-handed skewing.  Right-handed skewing signals strong momentum, while left-handed skewing signals weak momentum.  That's what makes this pattern so interesting; the combination of bearish retracement and potentially explosive momentum.  The pattern, once triggered, would be void above 0.7104.  The downside target would be 0.6708.

Momentum traders, who would take the breakout trade, would be risking 1850.00 per futures contract.  The reward would be 2120.00 per futures contract.  Pullback traders would look to get long somewhere inside the 0.6921 and 0.7104 area for a better reward-to-risk ratio.

Downside obstacles? The 120m chart shows a tiny abcd pattern on the leg down from the 7/6 high.  It has potential Fib support extensions at 0.6869, 0.6796, and 0.6723.  There's also a July monthly S1 pivot at 0.6840.  Finally, there's a July monthly S2 pivot just below the target at 0.6697.


One last thing worth mentioning is the bigger picture of this market, which is bullish.  A pullback down to the bearish ABCD pattern's objective would only represent a 38.20 retracement of the 2020 to 2021 rally.  Also, if we look at volume profile over the same time we see a larger volume cluster between 0.6683 and 0.6521.  This could present a potential BUYING opportunity.

To sum up:

Look for a break below 0.6921 within the next few days for a bearish breakout with strong downside momentum.  Play either the breakout OR wait for a possible pullback for a better entry.  The downside target is 0.6708, which is just above a larger volume cluster of support.  A potential long trade could present itself at that time.

Stay tuned!