By: Mike Kulej
Financial markets have reversed directions this week. Not just currencies, but stocks and commodities as well. The volatility increased, dramatically in many cases. The question is, are these moves just corrections, or reversals?
For most currencies it is probably too early to talk about major changes using daily or weekly charts – not enough time has gone buy. However, the intermediate term charts can provide clues, if early patterns on these time frames form properly.
In case of the NZD-USD, we can see a possible Head and Shoulders formation under development on the 4H chart. The left Shoulder is at 0.8000, the Head 0.8119 and the Neckline connects minor lows of 0.7820 and 0.7813. The right Shoulder has not been formed yet and can only be projected. However, the key is the Neckline – if it is broken, the price could drop to 0.7600. That, in turn could be a start of even larger sell off.
The MACD has already turned below the zero line, which is bearish, but it would be nice to have additional confirmation on a break of the Neckline support (if it happens). One might use the Three Line Break chart, which is also testing a support. That would increase the probabilities of the NZD-USD moving even lower.