AUD/NZD Stalling at Key Fibonacci Level

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AUD/NZD Stalling at Key Fibonacci Level

Backdrop: The AUD/NZD has been bullish since making a record low at 1.0353 in January. It rallied to 1.0795 after a dovish RBNZ statement. Then after a brief consolidation, it fell sharply after the RBA surprised with a rate cut. It was not a big surprise, but nonetheless, the difference in monetary policy between the RBNZ and RBA suggests that the AUD/NZD has downside risk from a fundamental standpoint.

AUD/NZD 4H Chart 2/5
audnzd 4h chart 2/5
(click to enlarge)

Bearish Signs: From a technical standpoint, the 4H chart shows a shift from the bullish trend to a neutral one and now to a possible bearish mode. The bearish signs are:
1) a break below a rising trendline,
2) a break below the 200-, 100-, and 50-period SMA,
3) the RSI broke below 40 showing loss of bullish momentum.

Bullish Rationale: We can make an argument for the bullish outlook as well. Price seems have stabilized above 1.05 and is trading around the 61.8% fibonacci retracement level at 1.0522. This suggests that in the near-term, there is support, and a possible pullback is pending.

However, a break below 1.05 would get rid of this final bullish condition, and expose the 1.0353 low on the year. If there is a pullback, that pullback should first be limited to the 1.06-1.0650 area, which includes an area of support and resistance as well as the 200-, and 100-period SMAs. If price does not pull back above 1.0650, there is still downside risk to 1.05, and possibly to 1.0353.

On the other hand, a break above 1.0650 first puts pressure on the 1.07 area. A break above 1.07 would have reversed the reaction following the RBA rate cut and would suggest that the market is pricing in a rate cut for the RBNZ in its upcoming meeting, which will conclude on March 11.

AUD/NZD Daily Chart 2/5
audnzd dialy chart 2/5
(click to enlarge)

Because the RBA is also dovish, we should limit any bullish outlook in AUD/NZD. The daily chart suggests that above the 1.08 resistance, the 1.09 area will be key. This is just above the 200- and 100-day SMAs and represents the lows from a multi-month consolidation from August through half of November.

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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.