AUD/NZD Fighting on the Neckline

Today we will show you an interesting situation on the AUDNZD, where on Friday, buyers received one of the best gifts possible – a hammer on the neck line. Surprisingly, at the beginning of the new week, they do not follow this signal and the price is staying relatively low. Let us explain this situation in a greater detail.

First of all, what we have here is a mid-term up trend, which is a result of the inverse head and shoulders formation, which started in May 2016. Formation resulted in an upswing, which managed to break the long-term down trendline (red). Those two factors changed the sentiment into a positive one. From the 16^th of March we are observing a correction, which on Friday finally reached the neckline but this time from the top. Broken resistance becoming a support is one of the principles of the Price Action Trading and is especially common for the iH&S formations. This is why we were anticipating this correction and we were extra curious what will happen during the contact with the neckline. What happened was a bounce and the price draw a long tail indicating that the demand finally showed up.

Usually after such a formation, the next candle is positive. This scheme fails today. We can see a black body located near the daily lows. The day is not over yet but the support is under the pressure again. So far, buy signal is still present but once the price will manage to close the day below the neckline – the buy signal will be denied. On the other hand, current risk to reward ratio for a long trade is very attractive and is definitely worth considering.

This article is written by Tomasz Wisniewski, a senior analyst at Alpari Research & Analysis