FxWirePro: NZD/USD Major Downtrend on Triple Top, Minor trend on Double Top – Trading and Hedging Setup

The frequent occurrences of shooting stars at the stiff resistance levels have nudged the NZDUSD prices below DMAs.

Stiff resistance zone - of 0.6437 & 0.65 levels.

Shooting stars occurred at 0.6421, 0.6404, 0.6425 levels and gravestone doji at 0.6405 levels (refer daily chart).

The pair has plunged almost 100 bps to its current levels of 0.6338 from where we traced out these shooting stars at the peaks of rallies at the stiff resistance. 

Thereby, it has formed double top pattern with top 1 at 0.6450 and top 2 at 0.6465 levels.

Consequently, more slumps appear to be likely event as the current price has slid below 7 & 21-DMAs upon the intensified bearish momentum.

Both leading oscillators (RSI & Stochastics) show downward convergence to indicate the faded strength and the intensified selling momentum.

On a broader perspective, the major downtrend extends on triple top formation and most importantly it has breached down triangle support and slid below 7-EMAs (refer monthly chart). As a result, the prices sank from the peaks of 0.6305 to the recent lows of 0.6203 which is the lowest level since 2015. 

RSI oscillator, on this timeframe, shows faded strength at 57 levels, downward convergence to the prevailing downtrend and forms lower lows.

As a result, bears appear to be extending further on the triple top formation. The momentum oscillators are backing up further downtrend. The intensified selling momentum is signalled by both leading oscillators (although stochastic is slightly indecisive) on this timeframe as well. Observe steep slumps below EMAs on breach below neckline on this timeframe, this reminds us the major downtrend as trend indicators (MACD & 100EMAs) are still bearish bias in the major trend.

Trading tips: Contemplating above technical rationale, at spot reference: 0.6338 levels, as we foresee major downtrend continuation up to 0.6050 levels amid mild buying sentiments, shorting futures of mid-month tenors have been advocated in our directional hedging strategy ahead of RBNZ with an objective of arresting puzzling swings.

On hedging grounds, we advocated initiating shorts in futures of December’19 delivery are the most important for the major downtrend.

While trade tunnel spreads using upper strikes at 0.6341 and lower strikes at 0.6305 levels.