Technical Sentiment: Bearish
Key Takeaways
US Pending Home Sales increased 3.4%, well above the 1% forecast, thus providing the US Dollar with a boost. NZD/USD grinded lower throughout the European and US session, approaching critical support levels ahead of the New Zealand Trade Balance which came out in line with expectations. As long as the pair maintains lower lows and lower highs on 4H timeframe, the Daily landscape will soon adhere to the same principle.
Technical Analysis
With the exception of one minor hiccup last week, which was quickly corrected soon after with April 24th Bearish Engulfing Bar, NZD/USD has been maintaining a solid bearish tendency since April 10th. With a steady configuration of lower highs and lower lows, the pair has now moved safely below the 200 Simple Moving Average on the 4H timeframe. This opened the way for the pair to test most important support levels on a larger scale.
The 50-Day Moving Average (priced at 0.8525) and April 3rd Low of 0.8514 represent the current key support levels. In the major trend configuration, a breach below 0.8514 would mark the first Lower Low on the Daily, invalidating this year’s uptrend. Since the 0.8500 large round number is just a few pips away, it would be great from a technical perspective if the Low will form in the 0.84xx region, just to make sure it’s not a fake signal. A break and consolidation below 0.8500 would target 0.8430, the pivot zone from early March. However, Stochastic is in oversold territory on the 1H, 4H and Daily timeframes; bringing up the possibility of another 4H rally which will be sold in the coming EU and US sessions.
A stronger bounce off the 0.8515-0.8530 support cluster is possible, albeit less likely, depending on US Consumer Confidence and ANZ Business Confidence reports. In this situation the pair will encounter a similarly strong resistance confluence between 0.8585-0.8600, formed between 50, 100 and 200 SMA on 1H and 4H timeframes. Above 0.8600 the short term bearish configuration will be invalidated on the smaller timeframes, in which case NZD/USD might recover all the way up to 0.8660-0.8700.
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Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets