NZDUSD is currently at the bottom of its range on the 1-hour time frame, still deciding whether to make a bounce or a break. Price came off a pretty sharp drop and has gapped down over the weekend.
Data from the US came in strong on Friday while New Zealand reports indicated weakness over the weekend. With that, the path of least resistance might be to the downside, although technical indicators are giving a different argument.
Stochastic is already indicating oversold conditions and might be turning higher, drawing more buyers to the mix. Also, RSI is starting to make its way out of the oversold area, indicating that a bounce might take place. A weak rally could allow the gap to get filled before price resumes its test of support.
A break lower could spur a 200-pip drop, which is roughly the same height as the chart formation. This could take NZDUSD down to the .6300 levels or much lower. For now, the 100 SMA is above the 200 SMA so a bounce is indeed possible, but a downward crossover appears to be brewing.
Event risks for the US dollar this week include the NFP release on Friday, following leading jobs indicators such as the ISM surveys and the ADP non-farm employment change figure.
As for the Kiwi, it might take its cue from the reports from Australia, namely the GDP, trade balance, and retail sales due throughout the week. Chinese PMI readings, which generally dictate overall market sentiment, are set for tomorrow, along with the RBA interest rate decision.
Weak results could result to a risk-off environment, pushing the commodity currencies lower against its safe-haven peers. On the other hand, upbeat data could inspire risk-taking and take NZDUSD up to the top of its range later on.
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