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Selling GBP/NZD off Bearish Channel Resistance

Last updated 6/22/2012 1:13 PM EST (GMT -5) 0 Comments - Add your comment

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Matthew Weller

Technical Analyst, GFT

Follow @MWellerFX

As outlined in this morning’s Live Market Analysis webinar , the GBP/NZD has formed an astoundingly clear downtrend over the past month. Over that time period, rates have fallen over 1400 pips and have yet to bounce even 300 pips against the downtrend, as the below chart shows. Over the last 2 days, rates have bounced 288 pips, in-line with some of the larger previous bounces, suggesting that as long as the downtrend remains in force, rates should not eclipse today’s high. With the pair resuming its drop again today, a retest of key previous-resistance-turned-support at 1.9600 is probable.

The 4hr chart shows the clear structure to the price action so far this month.  As the chart shows, the pair is trapped within a bearish channel, and the recent rally has taken rates from the lower end of the range up to the top. The pair recently completed a Bearish Engulfing Candle* on the 4hr chart, confirming a strong shift from buying to selling pressure off resistance. To improve the risk/reward ratio on a sell trade, we will look for a brief counter-trend bounce back toward the top of the channel.

Specifically, traders could set a limit sell order at 1.9800 (about midway through the recent Bearish Engulfing Candle) with a stop at 1.9900 (above today’s high and bearish trend line resistance) and a target at 1.9640 (just above the weekly lows and key support from the daily chart). With the outlined parameters, this trade would offer a very favorable risk/reward ratio, with about 5 pips of potential reward for each pip of risk. This trade would be invalidated if not triggered by Monday’s North American close (17:00 Eastern, 21:00 GMT).

Potential Strategy: Sell if GBP/NZD bounces to 1.9800, stop at 1.9900, target at 1.9640.

For more intraday analysis and trade ideas, follow me on twitter ( @MWellerFX ) and attend our daily Live Market Analysis webinars. Visit your local GFT website under “Seminars and Webinars” to sign up.

*A Bearish Engulfing candle is formed when the candle breaks above the high of the previous time period before sellers step in and push rates down to close below the low of the previous time period. It indicates that the sellers have wrested control of the market from the buyers.

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About The Author

Matthew Weller has been actively trading the various financial instruments including stocks, options, and forex since 2005. From his first exposure to forex, Matt was fascinated by the vast liquidity and volatility offered 24 hours a day in the forex market. He has specialised in currency trading ever since.

Matthew focuses on candlestick patterns and pivot points to identify logical trade entries and exits. In addition, he has discovered a passion for teaching others about trading and has conducted over 400 educational webinars on different aspects of trading the forex market. His analysis has been quoted in Reuters, MarketWatch, and on the NASDAQ newswires.