GBP/NZD Long-Term Trend Reversal After Double Bottom Formation

GBP/NZD Long-Term Trend Reversal After Double Bottom Formation

Published: July 23rd, 2020

In today’s analysis, we would like to bring your attention to the GBP/NZD currency pair. Not only it has a specific price action but what is also attractive is the overall strength of the Great British Pound across the board. Tomorrow we’ll try to present you another GBP related currency pair to show the potential domination of the Pound Sterling over other fiat currencies, but today let’s observe GBP/NZD.

Daily chart

GBP/NZD Daily Technical Analysis 23 Jul 2020

By looking at the Daily chart we can spot the ongoing long-term uptrend and that the price continues to produce higher highs and higher lows over the course of the past few years. On March 9, GBP/NZD topped out at 2.1759, and then the strongest correction down followed since the beginning of the overall uptrend. The current pullback resulted in a 12.67% drop in price and pair found the support near 1.9000, which is an extremely strong psychological support.

Moreover, during the last 30 days, GBP/NZD has been consistently producing lower lows, but the RSI oscillator has been producing higher lows. This is obviously a formation of a bullish divergence, suggesting either a long term uptrend continuation of a correctional wave up. Also, the downtrend trendline is now acting as the support and is being rejected during past few weeks. The nearest resistance is seen at 1.9574, which is confirmed by 61.8% Fibs applied to the October - December 2018 downtrend. In the following charts, we’ll get back to this resistance level to show it’s importance.

4-Hour chart

GBP/NZD 4-Hour Technical Analysis 23 Jul 2020

On the 4-hour chart, GBP/NZD found the bottom on July 7, after which price went up and broke above the downtrend trendline as well as the 50 Exponential Moving Average. Pair has reached the previous level of resistance at 1.9289 and corrected down sharply. However, GBP/NZD failed to break below the previously made lower, while formed a double bottom reversal pattern. The RSI oscillator formed a bullish divergence, also suggesting that price might be starting to move up in the coming days.

Fibonacci applied to the June 11 - July 7 downtrend shows that 88.6% Fibs is located at 1.9567, which quite precisely corresponds to the previously discussed resistance level at 1.9573. This means that the area between 1.9565 and 1.9575 could be a profit-taking zone for the short to medium term buyers.

1-Hour chart

GBP/NZD 1-Hour Technical Analysis 23 Jul 2020

Here we have applied two ascending channels. If we look at the first channel, price went slightly below but then returned back into the channel very fast on two occasions. The second channel was extended and in this case, price cleanly rejected the lower channel trendline.

After the bounce off the bottom of the channel, the price went up and broke above the 50 EMA along with the previous level of resistance at 1.9128. Right now, there is a possibility that the price once again will re-test this price area, which could be extremely attractive for those who seek the opportunity to buy GBP/NZD.

30-Minute chart

GBP/NZD 30-Minute Technical Analysis 23 Jul 2020

And finally comes the 30m chart, where yet again pair formed a double bottom, but this time on the lower timeframe. The downtrend trendline and 50 EMA were both broken and today GBP/NZD reached 1.9495 high. The correction down followed and the price has bounced off 1.9150 support cleanly. This support is confirmed by 23.6% Fibonacci retracement level, which previously also acted as the support area. After the bounce price went up and printed a new higher high, suggesting bullish pressure.

Here the 1.9573 resistance level is also confirmed by 927.2% Fibs applied to the corrective wave down where 23.6% Fibs was rejected.

Summary

All-in-all there is a potential for over 400 pips growth as long as price remains above the 1.9000 support. This might take less than a full trading week, but on the other hand, considering the summer holidays, the price could be consolidation for quite an extended period of time, before/if uptrend begins.

Upside targets

As per the Daily, 4-hour, and 30-minute charts, the key resistance is seen at 1.9573, which is confirmed by 3 different Fibonacci retracement levels.

Probability of a downtrend

As per the 4-hour chart, the lowest point reached during the double bottom formation was at 1.9004. This is very close to the key psychological price at 1.9000. Therefore, a 4-hour break and close below this level will invalidate bullish outlook and medium-term downtrend continuation can be expected.

Support: 1.9150, 1.9000

Resistance: 1.9289, 1.9573

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