Double Bottom Developing: The USD has been giving back its gains after the FOMC statement last week. For the NZD/USD this meant that after failing to break below 0.7176, it is starting to show signs of pending bullish correction (It is actually already in one). When we look at the daily chart, we can see that at the beginning of March, the kiwi-us dollar pair was in a bearish continuation breakout. This bearish attempt however did not extend the downtrend further. Instead we are seeing a possible double bottom forming.
Consolidation/Bearish Continuation Scenario:
Let’s not get ahead of ourselves. This can easily be just a sideways consolidation caused by the non-hawkish tone of the latest FOMC statement. Let’s note that it was not dovish. All we know is that the FOMC does not plan to raise rates in April. As for the RBNZ, it has been slightly less dovish. Given the current central bank stances, the NZD/USD should be bearish or at most neutral, but not bullish. Therefore, we should favor the consolidation/bearish continuation scenario after the current rally, which we would label a bullish correction.
Give it some breathing room above that 0.77613 high. From a technical perspective, we should look at that 0.7613 high up to the 0.77 handle as a key resistance area if the market is bearish. The RSI should also hold below 60 forgiving a brief violation for a couple of daily sessions.
Now, if price holds and retreats from the noted resistance let’s see what happens in the 0.74-0.7440 area. This represents the central pivot of the current consolidation as well as some common supports and pivots. A break below 0.74 means, the bulls are not able to keep their line, and the pressure will be back on the 0.7176 low with risk of extending the prevailing downtrend lower.
Bullish Correction Scenario and Target: If the bearish continuation scenario does not materialize, and price breaks above 0.77 AND is able to hold above 0.74 upon the subsequent pullback, the NZD/USD exposes the 0.79-0.80 highs from October 2014 through January 2015.
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