FxWirePro: EUR/NZD hanging man develops double top pattern, hammer disrupts – Trading and hedging setups

The minor trend of EURNZD has been jittery especially after the formation of hanging man at 1.7254 level on weekly plotting, ever since then the pair has formed a double top pattern with top 1 at 1.7201 and top 2 at 1.7307 (refer daily chart). On the contrary, the hammer pattern candle has occurred at 1.6582 levels on 22ndJuly.

Can hammer disrupt the double top extension? But the current rallies struggle at 7-DMAs as both the technical indicators are in tandem with the prevailing downtrend.

RSI and stochastic curves have shown downward convergence to the price dips which is an indication of strength and intensified bearish trend. To substantiate this stance, MACD has shown bearish crossover entering the bearish territory that indicates downswings to prolong in near-terms.

Contrary to that, on a broader perspective, the major trend of this pair has developed a rising channel pattern.

The pair has taken support at the midway of 1.6311 levels (refer weekly chart), the current major trend slides below EMAs again with bearish EMA and MACD crossovers, both momentum oscillators have turned extremely bearish bias on this timeframe.

Trade tips: On daily trading grounds, at spot reference: 1.6628 levels, we advocate constructing tunnel spread, using upper strikes at 1.6660 and lower strikes at 1.6525 levels. The strategy is likely to fetch leveraged yields as long as the underlying price keeps dipping but remains above lower strikes on the expiration.

Alternatively, as we could foresee downside risks in the near terms ahead of ECB’s monetary policy, on hedging grounds, we advocate initiating shorts in EURNZD futures contracts of near month expiries and longs in mid-month tenors with a view to arresting further upside risks.