NZD/USD – Bears in Control, Evidenced by an Engulfing Candle

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NZD/USD - Bears in Control, Evidenced by an Engulfing Candle

Consolidation Range: The NZD/USD pair has been consolidating since December after marking a 2014-low at 0.7608. The 4H chart shows the pair in a consolidation range roughly between 0.7608 and 0.7870.

NZD/USD 4H Chart 1/12
nzdusd 4h chart 1/12
(click to enlarge)

Failed Double Bottom: Note the 200-, 100-, and 50-period SMAs clustered together around 0.7760-70. This week, NZD/USD started with a failure to break above the 0.7870 resistance, failing to form a price bottom. Instead, price retreated and is now trading in the middle of the range, right around the cluster of moving averages, where we are seeing some strong intra-session buying.

Bullish/Bearish Clues: Now, if price can hold above the moving averages, the NZD/USD will still have a slight bullish bias with pressure on the 0.7870 area. But overall the market is neutral. Now, if the pair closes the 1/12 session below 0.7750, the market is likely bearish. Then a break below 0.7713 would be another sign of bearish outlook towards the 0.7608 low, with risk of breaking lower.

From the assessment above, you can tell I favor the bearish outlook. This is because the prevailing trend is still bearish based on the daily chart.

NZD/USD Daily Chart 1/12
nzdusd daily chart
(click to enlarge)

Getting Choppy: When we look at the daily chart, we see a bearish market that has become choppy since October. Then in December, it became sideways. This does introduce the bullish scenario, but it is missing the break above 0.7870.

Still Bearish: Despite the apparent shift from a sharp downtrend to sideways price action, price respected a falling wedge resistance along with the 0.7870 high as we begin this week. The RSI has held below 60, and even below 50, showing maintenance of the prevailing bearish momentum.

Engulfing Bearish Candle: If the 1/12 daily candle manages to close below 0.78 as it would if the session ended now (10:40AM ET), then we would have a bearish engulfing candle, which is also a bearish signal.

In the very short-term, price appears poised to test the 0.77 pivot, with risk of breaking toward the 0.7608 later this week.

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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.