NZD/USD recently broke below a rising trend line connecting the lows of the price, indicating that the previous uptrend is already over. Before heading any lower though, the pair made a quick retracement move to the Fibonacci levels on the 1-hour time frame, possibly forming a head and shoulders pattern on the chart.

Stochastic is already in the overbought area, suggesting that Kiwi bears are ready to push the pair lower. The 61.8% Fibonacci level is closest to the broken trend line and might act as resistance for the latest rallies.

Shorting at the .8625 area with a stop above the broken trend line and a profit target of new lows could make for a good return on risk for a swing trade. If the head and shoulders pattern is completed, a breakdown could last by nearly 200 pips, which is the same height as the chart pattern.

By Kate Curtis from Trader’s Way