NZDUSD is currently testing the bottom of the ascending trend channel on its 1-hour time frame, creating a potential long forex trade setup. Stochastic is indicating oversold conditions with a bullish divergence, suggesting that a bounce might take place. MACD is also in the oversold area and hinting at a possible rally.
The moving averages aren’t offering good clues for the forex trade setup at the moment since the indicators are moving sideways. The 100 SMA is still moving above the 200 SMA, which suggests that the uptrend could stay intact.
Forex Trade Setup Options
A bounce from the current levels might take NZDUSD up to the top of the channel near the .8050 minor psychological level. A weaker rally might last just until the mid-channel area of interest at .7950.
On the other hand, a downside break of support might lead to a longer-term downtrend and perhaps a test of the previous lows near the .7700 handle. A short forex trade setup below the channel support or .7850 might be enough to catch a sharp drop. After all, the latest CPI release from New Zealand was weaker than expected at 0.3% for the third quarter versus the projected 0.5% increase.
Event risks for this forex trade setup include the upcoming New Zealand trade balance release, which might also come in weaker than expected. Risk aversion is still dragging higher-yielding commodity currencies lower, aside from the fact that actual commodity prices are still in a weak spot.
As for the US dollar, traders are taking advantage of the recent corrections to buy the safe-haven currency at better prices. Although the FOMC indicated that they might not be ready to hike rates next year, the US economy is still one of the better performing major economies and might continue to post stronger data.
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