NZD/USD Is in a Bearish Continuation Attempt

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NZD/USD Is in a Bearish Continuation Attempt

USD Strength and Fundamental Backdrop: The USD is starting this week with a bit of strength. We looked at the EUR/USD, GBP/USD and AUD/USD as they retreated. Out off all the USD crosses, NZD/USD is one of the better ones to short because NZD is relatively weak vs. other majors. This is mainly because the RBNZ is expected to cut rates this year, where as the FOMC is expected to raise rates, the RBA is expected to stop cutting rates, the ECB has already shot the bazooka, and the BoE is being optimistic and effectively closed the door to a rate cut.

NZD/USD Daily Chart 5/19
nzdusd daily chart 5/19
(click to enlarge)

Technical Reasons for Bearish Outlook:
The daily chart shows that NZD/USD has shifted from a downtrend to a sideways one and even started a little bit of bullish bias after making a double bottom above the 0.7176 low on the year. Now price failed to extend much higher above the double bottom, and held under the 200-day simple moving average (SMA). The RSI has also held under 60 for the most part, which reflects maintenance of the bearish momentum.

At the end of April, we saw a double top under 0.7741. Price completed this top in May. Last week after a pullback towards 0.7563, we saw NZD/USD hold under that double top, adding to the theory that NZD/USD has started a bearish continuation attempt, which has the 0.7176 low in sight.

NZD/USD 4H Chart 5/19
NZD/USD Is in a Bearish Continuation Attempt
(click to enlarge)

Looking at the 4H chart, we can see a bearish swing from the 0.7563 pivot. Now if we get a bounce look for sellers around the 0.7430-0.7440 area, which involves the 50-period SMA and is a previous support pivot area. Above that, the next key resistance will be around 0.75 and a falling trendline.

From these two pivots, we should expect a bearish attempt back towards first the 0.73 handle, then the 0.7176 low on the year.

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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.