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Today’s Trading Edge: NZD/USD bearish butterfly pattern remains valid despite rebound in business confidence


The New Zealand Institute of Economic Research noted a strong pickup in Q2 business confidence in New Zealand.  A net 22 percent of businesses saw increased demand over the past quarter, with a net 19 percent expecting an improvement over the next quarter. The improvement in sentiment was widespread across the sectors and regions. Nonetheless, there remains a divergence in business confidence between the urban and rural regions, reflecting the differing fortunes of the tourism and dairy industries. Although business confidence in dairy-intensive regions including Taranaki and Southland improved, pessimists still outnumbered optimists.

The impressive economic release however was unable to help drive the kiwi above the critical psychological .7300 level.  Since forming a six year low on August 28th at the .6227 level, NZD/USD continues to rebound as commodity currencies continue to rebound. 

Price action on the NZD/USD 240-minute chart highlights the potential formation of a bearish butterfly pattern.  Point D is targeted with the 141.4% Fibonacci expansion level of the X to A leg and the 200.0% Fibonacci expansion level of the B to C move.  If valid we could see price pullback towards the .7150 region. 

If the pattern is invalidated and we see price action break above the noted .7300 resistance level, further upside may target the .7450 zone. 

The Trade: Buy NZD/USD at .7150, with a stop loss at .7050 and a take profit at .7450.  The Risk/Reward Ratio is 1:3 

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