NZD/USD is forming a forex reversal pattern on its 1-hour time frame, indicating that the recent downtrend might be over. Price has bounced a couple of times off the .8650 minor psychological area and looks ready to make a double bottom formation.
The pair is still a few pips away from the neckline around .8725 but a strong break above this could lead to a test of the previous highs near the .8850 minor psychological level. Stochastic has moved out of the oversold zone and is indicating a pickup in buying pressure, possibly enough to lead to a test of the neckline.
A slow rally could lead to only 75 pips in gains, which is the same height as the chart pattern. If the neckline holds though, another test of the .8650 level might be in the cards. Take note that the RBNZ is set to make its interest rate decision this week and is widely expected to implement another 0.25% rate hike.
Forex Reversal Signal
If the RBNZ mentions that they will pause with hiking interest rates for the rest of the year, the pair’s rallies might be short-lived and another forex reversal might be in the cards. A break below the .8650 mark could be a sign that the longer-term downtrend might play out.
Take note that risk aversion has been dominating the markets recently, as several political conflicts have discouraged traders to take on riskier and higher-yielding assets. The situation in Gaza still has shown no signs of improving while the new sanctions being dealt by the US and EU on Russia could also impact global economic performance.
With that, the US dollar could stand to gain more ground unless the RBNZ reiterates its hawkish stance. Dairy and commodity prices have been falling recently and this might be enough reason for the RBNZ to be cautious.
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