Dear friends Welcome to this FX review. I would like to thank you for your kind words and comments on both my EU and UJ calls. Also if you like this analysis and you find it useful please LIKE and leave a COMMENT. That motivates me to do more analysis for you. As you have seen in my recent update on GBPNZD call I closed the trade for 150 pips of profit. The reason for that is because I see some possible trend reversal in both GBP and NZD. Remember in FX you lose money if you are wrong in your prediction for both nominator and denominator currencies! Even if you are wrong with one of two you will be still at break even.
Anyway let’s get into the business, in the review I will review the followings:
A) Bulls versus Bears B) British Pound currency outlook C) New Zealand currency outlook
A) Bulls versus Bears
First of all look at this weekly price action on GBPNZD.
As it shown the pair had attempted 4 TIMES to bounce off the EMA 14 and EMA 21 and each time it was failed to go higher, until the last time that was just this week.
Also see the fight between the Bulls versus the Bears. In fact the LONG WICKS indicate that the Bulls controlled the ball for part of the game, but lost control by the end and the Bears made an impressive comeback. Just look at the size of the week for the last candle and 2 weeks ago.
Also there is a wedge formation as you can see below. The price has not completed the rotation and had an under-shoot. This failure is a sign of bearishness.
You can even draw the wedge like this and it is even supper bearish
Also if you draw a modified Pitchfork you can see another failure of rotation in the mdi band.
And if we move to a very short TF like 4 hours we see a nice H&S formation that is about to be formed.
So far so good but to see that going lower we have some supports too. We have a basic support lines (in green) which is exactly one year old and another one from NOV last year. Plus we have the lower band of the wedge acting as a support line.
But as you can expect there are a lot SLs around that blue dotted line and after that is just FREE MONEY until the next level of support as nothing can stop that from falling.
But you may ask KHAN why do you think this pair can break all layers of supports apparat from a few times of false breakouts and failures?
Well get ready for the main ones that coming next…
B) British Pound currency outlook
This is the weighted average GBP all the way from Brexit.
The pair has been rising up since flash crash for almost 20 months and made that blue wedge and just recently made H&S at the top of the wedge followed by a sharp move lower. As you know I made 370 pips on GU for that move lower and see where the price is right now. Let me zoom in
As you can see the price made a wedge formation at the lower band of the Blue wedge and both EMAs (14 and 21) and Neckline acted as a strong resistance. If there is a move lower the first target is Fibo overlaps (red circle) and then maybe lower as the above chart suggests. And if I go to 4 hours TF you will see a beautiful rejection of 1) rising trend line and 2) EMAs. But again you might ask how do you know that the last layer of rising support can be broken? Then in the case see the following.
This is UK 10 years Yields and see how it pulled back nicely after Friday’s session. The weaker a country’s economy is the lower the Yields going to be allocated to bonds. So this one suggest a weaker British Pound.
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weaker British Pound.
And as you can say the wedge is getting to the end of its useful life. Also see the target if it is going to go lower.
In fact Bonds are the other way around. See the false breakout of the wedge and the previous low.
Same thing with UK 10 years GILTS.
We would like to see a stronger FTSE 100 for our Pound bearish scenario. And I thought it would interesting to show you how Bullish it is on the YEARLY! A yearly Bullish Engulfing… remember the candle is about now
and even on the 6M is the same
Then why not looking at Pound futures on 6M too
On daily see how stubborn this futures are to break the support and if they do see the next Fibo overlaps. Interesting to know that next Cyclin line also sitting a head of us and looks reasonable.
The chart above also reminds us GBPUSD and it is also a great news for people to who are Short GBPUSD. However I have no set up for GBPUSD yet. And the last one is a beautiful chart for GBP currency index. Supper bearish
That end the reviewing British Pound and next we turn into New Zealand Currency.
A) New Zealand currency outlook
I would like to start with a very basic chart with only one line there, New Zealand currency index. Very basic support and resistance and a great example of how to draw these lines for beginners.
So as it can be seen price gone into the support and immediately bounced. This means that we may have a stronger NZD. On NZD futures also you will see the same support plus we also have a rising trend line adding to the Bullish scenario.
The down side of this chart is that there has been still some downside risk for NZD but I exited my GBPNZD long when I found that price has been responding to these supports. NZD weighted average also shows some elements of pullback for the same reasons stated above.
But as you can see the overall trend is to the down side but the key question is how far NZD can go higher? Then let me zoom in to see better…
I would say not to much and I am sure this is not what you want to hear. I can see that gets up to the resistance (blue dotted line) and the lower band of the pink Flag. Two note here. 1) Other charts suggest more pullback like ZXY below
2) This is enough to accelerate GBPNZD initial move and do not forget that in “A)” I stated if the pair break the first layer of support then nothing can stop it to get to the second layer of support (both in grean).
Anyway. NZD index also suggest a pullback but not too much. Maybe to the mid band.
And the self-explanatory NZD 10 years Yields
as well as NZD Bonds
Conclusion: GBP will be a weak currency for a while and NZD will be a strong currency not for a long period of time.
Please Like and comment below if you liked my analysis.
With kind regards and thanks,
KHAN
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Have a great trading week my dear friends.
Just to add that EURNZD is also offering a great Shorting opportunity and I opened a short position on Friday afternoon. So both GN and EN both will be bearish.
Sorry no post for EN yet but you know the market sentiment for both Euro and NZD per my previous EU and GN calls.
As some of my dear colleagues know, there was a super negative figures came out form NZD today which caused an immediate move up but the overall sentiment for this trade still remain bearish, thanks to our weak GBP.
I have a friend who exited this trade and jumped in GU short now...
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Target 1 Filled for + 88 pips Thanks for following
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Well to be honest I did not expect such beautiful bearish candle (if we could call it a bearish engulfing) to get formed. Just get ready for second TP 2 my dear friend.
Thanks to @EilderJorgeGarcia with his great ideas I followed his work and produced the following chart. I think you will like it.
In the above chart I compare 1) Weighted Average NZD vs 2) Weighted average GBP (red line) for a period of one year. First thing that you realize is that these two currencies have been negatively correlated up until the black vertical line. Please make sure that you see the opposite correlation first. Then what happened after the black line they become correlated which is odd. One of these two pair has to reverse. Question is which one? I believe because NZD has been oversold (see the long run that it had) which has been confirmed by RSI, it is going to reverse. GBP has just started it’s move where NZD has been on that downtrend move since mid-March. Again a big thanks to our friend @EilderJorgeGarcia for his great ideas.
It's going great Khan! Very quick to hit first2 targets so I'm debating whether to wait for Target 3! :-/
khansalarehsan
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@MarkGoody, hmmmm. If it is me I would wait for that but it really depends on risk tolerance
MarkGoody
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@khansalarehsan, I have the same sentiment....I need to be more patient. Thank you once again!
MarkGoody
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This trade has been excellent for me. Currently 90% up and, having tightened my trailing stop loss, I'm holding in the hope your further targets will be hit. Thank you very much for this great trade!