Is NZDUSD poised to initiate a fresh downtrend?
- NZDUSD in the red today after testing the October high
- USD recovery across the board drives today’s move
- Mixed Momentum indicators complicate the short-term outlook
NZDUSD is edging lower, reacting to Tuesday’s very strong green candle that pushed the pair towards the October 11 high of 0.6054. NZDUSD bulls took advantage of the widespread USD weakness but failed to overcome the 0.6060 level and are now testing the support set by the 100-day simple moving average (SMA). In the meantime, a double top pattern appears to be forming but a move below the 0.5772 neckline is needed for this structure to become active.
Amidst these developments, the focus has turned to the mixed momentum indicators. More specifically, the Average Directional Movement Index (ADX) points to a trendless market, and the RSI is edging lower but remains above its 50-midpoint. More importantly, the stochastic oscillator has moved above its moving average and is heading for its overbought territory. A higher high in the stochastic oscillator without a similar print in NZDUSD would be considered a bearish signal.
If the bulls remain confident, they could try to keep NZDUSD above the 100-day SMA at 0.5997 and then gradually push towards the busier 0.6060-0.6094 region. This is defined by the 38.2% Fibonacci retracement of the April 5, 2022 – October 13, 2022 downtrend, the July 14, 2022 low and the 200-day SMA. If successful, the bulls could have the chance to record a new 3-month high, opening the door for a protracted move towards the next resistance area that stands at 0.6198.
On the flip side, the bears are trying to regain market control. They could try to keep NZDUSD below the 0.5997 level and then set a course towards the 0.5915-0.5920 range that is populated by the May 15, 2022 low and the 50-day SMA. Lower, the bears could face strong support at both the 0.5870 and 0.5813 levels.
To sum up, NZDUSD bulls have made their move, but they appear to lack the strength to record a new higher high. They now have to defend their recent gains against the resurgent bears.