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EUR/NZD Bearish Pattern Puts Long Range Scalp Into Play

EUR/NZD Bearish Pattern Puts Long Range Scalp Into Play

2011-08-16 21:14:00
Michael Boutros, Strategist
Share:
EURNZD_Bearish_Pattern_Puts_Long_Range_Scalp_Into_Play_body_Picture_2.png, EUR/NZD Bearish Pattern Puts Long Range Scalp Into Play

We preface this report by noting that current market volatility is unfavorable for longer-term scalp setups as markets continue to remain in a heightened sense of alertness to breaking economic data or news. Still, it’s worth noting that this particular setup presents traders with opportunities for medium-sized scalps after the EUR/NZD pair rebounded off the 200-day moving average and the 50% long-term Fibonacci extension taken from the November 2009 and March 2011 crests at the 1.74-figure. The kiwi’s resilience against falling risk appetite and weakness in global equities bodes well for the currency as high-yielders tend to suffer on the back of risk aversion flows. Such is the case with the Aussie which saw steep declines last week amid volatile swings in global equities. Today’s reaction to French President Nicolas Sarkozy and German Chancellor Angela Merkel’s call for further European integration weighed on the euro as officials dismissed calls for the creation of a Euro Bond. With risk appetite creeping back into markets, the kiwi is likely to benefit as traders remain reluctant to move into the euro until further details on the proposed measures come to light. Accordingly our bias this setup will be weighed to the downside.

EURNZD_Bearish_Pattern_Puts_Long_Range_Scalp_Into_Play_body_Picture_3.png, EUR/NZD Bearish Pattern Puts Long Range Scalp Into Play

A 15min chart sees the pair continuing to consolidate within a descending triangle formation dating back to the August 8th high. Preferred short entry targets are held at the 23.6% Fibonacci extension taken from the August 8th and 15th crests at 1.7290 and 1.7350. Support profit targets eyed at the 38.2% extension at 1.7185 followed by 1.7140, the 50% extension at the 1.71-figure, and 1.7060.

With an hourly average true range of 54.92, we look to a shorter time frame from which to derive our profit targets. A 30 min ATR yields a read of 43.26 and accordingly profit targets on said scalp should be between 30-35 pips depending on entry. Note that the scalp will not be active until a rebound off of resistance target 1 at 1.7290 or a confirmed break below support target 1 at 1.7185. Once the scalp is active the levels will remain in play until such time when either of the topside/bottom limit targets are compromised.

Key Thresholds

A downward sloping daily RSI of 55.58 suggests risk for the pair remains to the downside as the indicator has been unable to hold above the 60 mark since mid March. The last time an attempt was made to breach this level back in early may, the pair saw a steep move to the downside. We reckon a breech above the topside limit at upper bound trendline resistance negates the bearish bias on the trade with such a scenario eyeing topside break-targets at the 1.74-figure, 1.7460 and the 1.75-handle. Likewise a break below the bottom limit 1.7060 risks further losses for the euro with downside targets eyed at the 61.8% Fibonacci extension at 1.7015 and 1.6960.

Entry/Exit Targets

Timeframe

Level

Resistance 1 Target

15min

1.7290

Resistance 2 Target

15min

1.7350

Topside Limit

15min

1.7365

Topside Limit Break-Target

15min

1.7400

Topside Break Target 2

15min

1.7455

Support 1 Target

15min

1.7185

Support 2 Target

15min

1.7140

Support 3 Target

15min

1.7100

Bottom Limit

15min

1.7060

Bottom Limit Break-Target

15min

1.7015

Reference Values

Indicator

Timeframe

Level

Fibonacci Extension – 0%

1hour

1.7460

Fibonacci Extension – 23.6%

1hour

1.7290

Fibonacci Extension – 38.2%

1hour

1.7185

Fibonacci Extension – 50%

1hour

1.7100

Fibonacci Extension – 61.8%

1hour

1.7015

Fibonacci Extension – 76.4%

1hour

1.6910

20-SMA

Daily

1.6804

50-SMA

Daily

1.7144

100-SMA

Daily

1.7632

200-SMA

Daily

1.7632

RSI

Daily

55.58

Average True Range (14)

30min

43.26

Related Economic Data Releases

Event risk of for the trade lies primarily with the euro with New Zealand producer prices expected to be of little consequence on the pair. Overnight, CPI data out of the EU is expected to hold at 2.5% y/y while consensus estimates for core prices are expected to remain unchanged at 1.6% y/y. While traditionally this data has the potential to be market moving as traders anticipate the central bank’s response to inflationary pressures, current economic conditions suggest response to the print will be rather muted as Credit Suisse overnight swaps are already factoring a zero chance for the ECB to move on rates at the next policy meeting. The single greatest risk to our bias remains rhetoric out of European central bankers after today’s press conference by French President Nicolas Sarkozy and German Chancellor Angela Merkel pushed for further European integration.

Upcoming Events

Country

Date

GMT

Importance

Release

Expected

Prior

NZ

8/16

22:45

LOW

Producer Prices- Inputs (QoQ) (2Q)

1.1%

2.2%

NZ

8/16

22:45

LOW

Producer Prices- Outputs (QoQ) (2Q)

0.8%

1.7%

EZ

8/16

8:00

LOW

Euro-Zone Current Account s.a. (euros) (JUN)

-

-5.2B

EZ

8/16

8:00

LOW

Euro-Zone Current Account n.s.a. (euros) (JUN)

-

-18.3B

EZ

8/16

9:00

MEDIUM

Euro-Zone Consumer Price Index (YoY) (JUL)

2.5%

2.5%

EZ

8/16

9:00

MEDIUM

Euro-Zone Consumer Price Index - Core (YoY) (JUL)

1.6%

1.6%

EZ

8/16

9:00

LOW

Euro-Zone Consumer Price Index (MoM) (JUL)

-0.6%

0.0%

Written by Michael Boutros, Currency Analyst for DailyFX.com

To contact the author of this report or subscribe to their daily analysis, please send inquiries to:mboutros@dailyfx.com

You can also follow Michael on Twitter @MBForexfor updates on this scalp and other trades.

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