NZD/USD Technicals – Long-term Breakout vs Short-term Recovery

After trading below the 0.848 support. price has continued to etch out lower lows and lower highs for the past 2 days. Today we traded slightly higher as risk correlated assets were buoyed during early Asian session due to recovery of Commodities.

Daily Chart

Stochastic readings suggest that bearish momentum is slowing down, and current green candle confirms that. However, before we label this bearish breakout as invalidated, it is important to note that Stochastic readings have peaked at the start of the sell-off from 0.868. Since then, we have not seen any significant bullish reversal and it has been a one way street dominated by bears.

Looking at the body of candles, bearish momentum has actually increased, not decreased since the Doji formed 3 days ago. However, when put together with the 3 Black Crows that started the initial sell-off, Stochastic average readings will interpret current breakout more harshly than it should. Also, notice that past 3 candles have seen long upside wick, which are all longer than current candlebody. Prices have seen volatility both on the upside and downside, and with current candle body being so narrow, this bullish candle is far from implying that sentiment has shifted from a bearish to a bullish one.

Hourly Chart

Zooming in into the Hourly Chart, we can see price forming distinct steps from 0.85 towards 0.84. 0.845 will be providing some resistance, which if broken will open up 0.85 resistance as potential bullish objective once again. However, bullish bias may only take hold if price manage to break 0.85, which will help to negate current wave of bearish bias (sell-off from 0.85) and put the recovery from 16th April low back into play.

Fundamentally, Kiwi and Aussie is current overvalued by 10%. That is the opinion of the IMF and suggest that assets priced in any of the 2 Oceania currency are severely overvalued. This should in theory scare investors from entering into both regions, and encourage current investors to clear their assets located within the region. Inflation rate will be lower, currency of both nations will be lower, RBA and RBNZ will certainly be happy, and bears will be even happier if it means lower NZD/USD in the future.

More Links:
USD/SGD Technicals – Sitting on 1.235
Copper Technicals – 3.20 holding despite corrective rally
GBP/USD – The 1.5250 Level Remains Key

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.