Assessing the Double Bottom Attempt in NZD/USD

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Assessing the Double Bottom Attempt in NZD/USD

Double Bottom Pattern: In the daily NZD/USD chart, we can see the kiwi-us dollar pair form a double bottom after failing to break below 0.7176. The pair broke above 0.7613 resistance to start the week, but has since held below 0.77, which is indeed a key support/resistance pivot. The inability to break this level would reflect a false bullish breakout. With the prevailing bearish trend still intact, a false bullish breakout could translate into a bearish continuation signal.

NZD/USD Daily Chart 3/27
nzdusd daily chart 3/27
(click to enlarge)

Now, in the daily chart, the bullish signs are:
1) The double bottom
2) Price crossing above the 50- and 100-day simple moving averages (SMAs). However, this sign is a weak one because price is still under the 200-day SMA, and has not been able to clear the 100-day SMA.

The bearish signs are:
1) The prevailing downtrend remains intact and the the previous multi-month consolidation from October through January is still holding as resistance.
2) The RSI is holding under the 60 level, which suggests maintenance of the prevailing bearish momentum.

Let’s take a look at the 4H chart for a closer look at this double bottom.

NZD/USD 4H Chart 3/27
nzdusd 4h chart 3/27
(click to enlarge)

In the near-term, there is room to fall that wouldn’t invalidate the double bottom attempt. When price approaches 0.7450 however, we should expect support. Why?
1) This is a previous resistance pivot at 0.7444, which should hold as support if the rally since 3/11 (0.7186) is to extend.
2) This is at the bottom of the 200-, 100-, and 50-period SMA cluster. A break below this cluster would kill the bullish bias established in the past couple of weeks.
3) There is a rising speedline from the 0.7186 low made on 3/11.

A bullish market would then keep the 0.77 handle in sight with risk of correcting higher.

Bearish Scenario: Now, a break below 0.7440 would open up the 0.73 handle, especially if the 4H RSI falls below 40. In this scenario, if a subsequent bullish attempt fails to bring the NZD/USD back above the moving average cluster, pressure will mount towards the 0.7186 low as well. We have another key resistance if price approaches the 0.7875-0.79 area.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.