On the New Zealand Dollar versus the US Dollar we can see that the price has stayed in a well-defined downtrend lately, but we can also see how during the drop, the price has made its retracements or pullbacks. The markets never go up or down in a straight line and that is why the breakout and pullback pattern works pretty well, especially around key support or resistance levels.
Some of the key support or resistance levels could be the round number levels, the high or the low of the previous day or previous week, a moving average, a Fibonacci Retracement level, or a Pivot Point. Around those key support or resistance zones is where we usually get the best trading opportunities.
On the 4 hour chart of the NZD/USD, courtesy of the Forex Broker ActivTrades http://www.activtrades.co.uk/, we can see a blue line which is the 200 period exponential moving average and we can also see how the price broke that moving average to the downside and then it pulled back to it to continue falling. Support becomes resistance or resistance becomes support. In this case the 200 EMA was support and then it acted as resistance.
Notice that the price then drops below the 0.7500 level and then pulls back to it to continue falling from there. Once again, we see how the breakout and pullback pattern develops around this round number level. The same thing happened today around the 0.7400 level, which is now acting as a resistance. From this point on there is a possibility of seeing a bounce to the downside and a visit to the 0.7300 level. However, the price may break above the 0.7400 level and try to visit the 0.7500 level.
Alexander Londono – Analyst contributor at ActivTrades.