The US dollar (USD) has been on a tear the last 24 hours against most currencies. Fueled by uncertainty about the future of European interest rates and Quantitative Easing measures, the sell off in the EUR and rally in the USD against it has spread to other pairs. The GBP, CHF, CAD, NZD and AUD are all falling versus the USD this morning.
Here are a couple patterns to watch for as this unfolds.
The NZD has actually been quite strong from late September to October 15 when it reached a swing high of 0.6897. The price then pulled back to 0.6698. The next rally made a lower high in early trading on October 23 at 0.6865. The price is now dropping toward the pullback low. This sets ups a lopsided double top. The pattern is complete if the price falls below 0.6698. The traditional target for a double top is the height of the pattern subtracted from the breakout price. The target would therefore be 0.6531 to 0.6499.
The pair could also continue to move inside the two drawn trendlines. If the support holds, or there is a false downside breakout, the price may be moving within a triangle or range pattern. In that case, buying near support provides a trade that’s in alignment with the recent uptrend, and provides profit potential up to the top of the range (0.6850 area), or beyond if the uptrend continues.
The USD has fallen against the Mexican peso (MXN) recently, but is finding support now. The pair peaked at 17.3405 on September 24 and then fell to 16.3246 on October 15. Since the low the USD is showing some signs of strength. This is a longer-term support area, and if support holds the price could be moving within a large range. In which case, targets could be placed in the 17.20 region on long positions. Currently the price is moving in a small ascending channel just above the primary support level.
The price could also break below the main support region support. That would signal a major topping pattern could be in place, and a continued decline in the USD versus the MXN. The traditional target based on this pattern is 15.31, if the price declines below support. That would take the pair back to where it was in mid-June.
These are some decent sized patterns which are underway. Formulate how you will trade them if various conditions develop. Downside breakouts are possible in both. But the support could also hold. In preparation for some possibly big moves analyze your entry points and stop loss levels to make sure the potential profit outweighs the risk.