By: Mike Kulej
Trading in December is often more challenging than during other times. With major holidays approaching, many market players take time away from the markets, while others limit the size of their transactions. Both institutions and individuals close positions for taxes and other reasons not necessarily present in other times.
In response, many currencies can behave differently at this time. The liquidity might lower, making markets more erratic than normally. This is typically most visible on smaller time frames, which makes December a good time to review the long-term charts, even if one does not normally trade them.
On the weekly chart of NZD-CHF, we can see that this pair spent 2009 in a strong uptrend, rallying from 0.5700 to 0.7665. In 2010, a new high of 0.8138 was established, but for most of the year the price moved in a wide range about 1100 hundred pips. In the process, the NZD-CHF formed a possible long-term Head and Shoulder reversal pattern.
For this formation to become a true top, the price must fall under the support of 0.7060. If this happens, the NZD-CHF would be officially in a downtrend, probably spanning most of the next year. A move of this magnitude, if confirmed, should present numerous trading opportunities on the short side of the market.