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Price & Time: Trading the Inverse Head & Shoulders Pattern in Kiwi

Price & Time: Trading the Inverse Head & Shoulders Pattern in Kiwi

2013-08-19 12:00:00
Kristian Kerr, Sr. Currency Strategist
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NZD/USD breaks the neckline of an inverse head & shoulders pattern while GBP/USD overcomes an important Gann angle level. EUR/USD continues to consolidate below 1.3415.

To receive other reports from this author via e-mail, sign up to Kristian’s e-mail distribution list via this link.

Foreign Exchange Price & Time at a Glance:

Price & Time Analysis: EUR/USD

PT_kiwi_body_Picture_4.png, Price & Time: Trading the Inverse Head & Shoulders Pattern in Kiwi

Charts Created using Marketscope – Prepared by Kristian Kerr

  • EUR/USD continues to consolidate below the 1.3415 2Q13 high
  • While above 1.3170 our near-term trend bias is higher in the exchange rate
  • The 1.3415 level remains an important upside pivot with a clear break through this level needed to set off a more important cyclical advance
  • A minor turn cycle turn window is seen over the next day or so
  • Only weakness below the 2nd square root progression of the month-to-date high at 1.3170 would turn us negative on the single currency

EUR/USD Strategy: Still square, but may buy a break of 1.3515.

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

EUR/USD

*1.3170

1.3295

1.3355

*1.3415

1.3430

Price & Time Analysis: GBP/USD

PT_kiwi_body_Picture_3.png, Price & Time: Trading the Inverse Head & Shoulders Pattern in Kiwi

Charts Created using Marketscope – Prepared by Kristian Kerr

  • GBP/USD traded to a 2-month high early on Monday following last week’s break of the 1x1 Gann angle line of the year-to-date high
  • While over last week’s low near 1.5420 our near-term trend bias is higher
  • A convergence of the 2Q13 closing high and the 100% projection of the July range near 1.5720 is now key resistance with strength above required to shift the broader trend to positive
  • A minor turn window is seen over the next day or so
  • Only weakness below 1.5420 on a closing basis would undemine the positive tone in Cable and turn us negative

GBP/USD Strategy: Longs favored while over 1.5420

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

GBP/USD

*1.5420

1.5520

1.5445

*1.5720

1.5780

Price & Time Analysis: XAU/USD

PT_kiwi_body_Picture_2.png, Price & Time: Trading the Inverse Head & Shoulders Pattern in Kiwi

Charts Created using Marketscope – Prepared by Kristian Kerr

  • XAU/USD tested the 6th square root progression of the year-to-date low near 1384 on Monday before backing off
  • While over key Gann support at 1280 our near-term trend bias will remain higher in the metal
  • The 1384 level is now an important near-term pivot with a close above needed to trigger the next bout of strength
  • Minor cycle turn windows are seen over the next day or so and near the end of the week
  • The 4th square root progression of the year’s low near 1317 is intermediate support, but only weakness below 1280 will turn us negative on the metal

XAU/USD Strategy: Like the long side whilst over 1280.

Instrument

Support 2

Support 1

Spot

Resistance 1

Resistance 2

XAU/USD

*1280

1317

1373

*1384

1396

Focus Chart of the Day: NZD/USD

PT_kiwi_body_Picture_1.png, Price & Time: Trading the Inverse Head & Shoulders Pattern in Kiwi

The price action in NZD/USD since early June can be interpreted as an inverse head & shoulders pattern. Last week’s close over the neckline of this pattern near .8085 technically confirmed the formation and paves the way for a much more important reversal in the weeks ahead. However, our experience with such “high profile” patterns is that only a small amount them actually work immediately. Most actually will cross the neckline several times before embarking on a bigger move. Why does this occur? We have no idea, but we imagine it probably has something to do with order flow intelligence that accompanies such widely watched patterns and clearing the “weak hands” out of the market. The short-term cyclical picture actually suggests such an occurrence is likely over the next couple of days with a minor turn window eyed for Tuesday. If the pattern is a good one then any weakness that follows should only last for a couple of days or so before resuming higher.

--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

This publication attempts to further explore the concept that mass movements of human psychology, as represented by the financial markets, are subject to the mathematical laws of nature and through the use of various geometric, arithmetic, statistical and cyclical techniques a better understanding of markets and their corresponding movements can be achieved.

Looking for a way to pinpoint sentiment extremes in the Kiwi in real time? Try the Speculative Sentiment Index.

To contact Kristian, e-mail instructor@dailyfx.com. Follow me on Twitter @KKerrFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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