NZD/USD Testing Februay’s Channel Support

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NZD/USD Testing Februay's Channel Support

Bullish February: NZD/USD has been rallying since the beginning of February after making a low on the year at 0.7176. The 4H chart shows the rally in 3 waves so far. They are labeled on the chart below:

NZD/USD 4H Chart 3/3
nzdusd 4h chart 3/2
(click to enlarge)

Channel: We can also describe the rally as a rising channel. Though the support and resistance will eventually converge, they can be considered relatively parallel in the time-frame we are observing.

Support Factors: Now, as price retreats from 0.76 to 0.75, NZD/USD is now testing the channel support. It is also testing the cluster of 200-, 100-, and 50-period SMAs which the kiwi-usd crossed over in February. The ability to treat them as support would be a strong bullish signal.

The RSI is also testing 40. The ability to hold above 40 would reflect maintenance of bullish momentum. If it slides below 40 but immediately pops back up like it did last week, we can still maintain the bullish bias.

Support or Breakdown: So, NZD/USD is now challenging the February trend. If it stays above 0.75, the bullish outlook is intact. A fall below 0.7475 however would clear the channel and the moving averages and likely bring the RSI below 40. This would first open up the common support in the 0.7330-0.7350 area. After that, the 0.7176 low will come into play.

Let’s stalk the chart a little closer in the 1H candlestick time-frame.

NZD/USD 1H Chart 3/3
nzdusd 1h chart 3/3
(click to enlarge)

Falling Wedge vs. Support: When we look in the 1H chart ,we see that since last week’s slide, the market has coiled a bit (losing volatility. Now if it uncoils by breaking above 0.7550, price would break above last week’s falling speedline, and the cluster of 200-, 100-, and 50-hour SMAs. In the near-term, that would signal bullish continuation, and the channel support we saw in the 4H chart would be considered holding.

This scenario would open up the 0.76 area, with risk of extending higher based on the prevailing February uptrend. Inability to push above 0.7550 followed by a break below 0.75 however would signal the bearish scenario discussed above.

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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.