The NZDUSD enjoyed a solid rally as price action initially broke out above a key resistance level and turned it into a new support area as visible in the above chart. After a brief counter-trend move which tested the resistance turned support level this currency pair continued a strong rally as strong economic data out of New Zealand trumped weaker data out of the US.
Forex traders are now advised to look for short positions in the NZDUSD between 0.7510 and 0.7540 as the strong rally did form a rising wedge formation which is a bearish chart pattern. More negative forces are expected to act on this currency pair; this creates attractive downside potential while the upside potential appears very limited from current levels.
As the rising wedge narrows forex traders are expected to take profits and exit their long positions in the NZDUSD. A breakdown below the ascending support level of is bearish chart pattern will increase selling pressure and invite new net short positions. This combination is set to take this currency pair back down to its support area from where it is expected to stabilize. A take profit level of 0.7390 is recommended for this trade.
Forex traders should protect this trade with a stop loss level at 0.7600 which will result in a Risk-Reward (RR) ratio of 2.50.
Short @ 0.7540
TP @ 0.7390
SL @ 0.7600