KIWI DOLLAR - 10 PIPS AWAY FROM SHARP DECLINE
Following a
strong False Breakout rally for the Kiwi against the US Dollar, the currency
pair has now settled above the Resistance of its Range just 10 Pips away from a
major Resistance formed 3 years ago. If this price is hit over the next few
days, we are likely to see a sharp decline of several hundred Pips that carries
it back inside the Range and possibly even lower over the next few months.
The Daily Chart
below shows the False Breakout below the Support of the Range that turned into
the sharp rally over the last few weeks.
DAILY CHART
Despite the
fact that False Breakouts usually lead to a break at the other end of the
Consolidation, the Bull Candles above the Resistance have so far been very
weak. This gives us a very small probability of a continued breakout that
supports further gains for the Kiwi. One reason for this might be due to the
fact that we are very close to a major Resistance that was formed in August of
2011- a major Resistance that has not yet been tested.
As we can see from the graphs below,
this Resistance was formed when the strong 2-year rally came to an end and led
to the formation of a large Pennant setup. Any Resistance or Support price
formed when a major trend comes to an end is likely to lead to sharp reversals
when tested for the first time. Whenever such a test is close to taking
place, the market tends to hesitate ahead of this test-partly due its
significance and partly because of the growing expectations of the trend
reversal to follow.
DAILY CHART
DAILY CHART
Assuming that
the market will rally to hit this Resistance, let´s see what is likely to take
place thereafter. This pullback would take us back inside of the Range where it
could continue to oscillate between Support and Resistance, moving by 230 Pips
on each occasion.
DAILY CHART
If the Candlestick Signals are strong enough with little volatility, trading within this Range can be very profitable. ABC Signals, Consolidation breaks and Trend Line breaks are possible signals that could provide entry signals inside of this setup.
Alternately,
instead of continuing to move inside of the Range, the pullback at Resistance
could lead to an even stronger breakout that breaches the Support, the
Resistance of the large Pennant and an Uptrend Line. This would take us down to the
0,7900 area of Support over the next few months, as the US Dollar recovers lost
ground of over 900 Pips.
DAILY CHART
Trading this breakout would also involve the use of ABC Signals, Consolidation breakouts as well as Counter Trend Line breaks. Trades can be held for a much longer period over the course of weeks or months, with less monitoring required compared to trading within Ranges.
Under both scenarios, the signals and the corresponding setups given on the Daily and 4 Hour Charts need to be strong and clear enough. Once these are provided and the trade meets the other criteria established to justify entry, consecutive gains will be realized by traders.
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Duane Shepherd
(M.Sc. Economics, B.Sc. Management and Economics)
Currency Analyst/Trader
Contact: shepherdduane@gmail.com
Twitter: @WorldWide876
Facebook: DRFXTRADING
So are you waiting for a bearish candle signal at the 88400 area zone then?
ReplyDeleteA bearish pin bar or bearish engulfing on the 4hr or daily or both?
Thanks,
Yeah, a strong bearish candle might start us off..ABC Reversal or even a smaller consolidation break might also do the trick..
Delete...on the Daily given the size of the range
Delete