NZD/USD Technicals – 0.785 Support Vs 0.791 Resistance

Price traded lower on Monday, extending last week’s bearish attempts to breakout from the multi-year trendline. However, the follow-through left much to be desired, with price merely trading 60 pips lower than Friday’s close before pushing up higher towards 0.79 again.

Weekly Chart
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From a technical perspective, the rebound affirms the 0.785 interim support that was significant back in July 2012 and December 2011. The failure to break the level also add doubts to the current “breakout”, which is yet to be confirmed. With 0.785 holding, there remains a chance that price may be able to rebound higher and trade back above the multi-year trendline, which will expose 0.805 as a possible topside target. This doesn’t mean that the overall bearish pressure will be negated, as the price needs to break 0.805 and potentially 0.818 for April’s decline pressure to subside. A move back towards 0.805 will at the very least postpone the potential breakout scenario, setting back acute bearish pressure for weeks before the next attempt to break occurs.

Stochastic readings are mostly neutral, but leaning towards a case of a rebound with readings being oversold and Stoch/Signal distance narrowing – suggesting that the bearish momentum has slowed down. Looking at the hourly chart below, it should be noted that yesterday’s low point was forged during Monday’s bear gap. This tells us that bearish traders were trading the “breakout” scenario, but overall bullish pressure surrounding 0.785 is stronger than these traders chasing breakouts, adding one more point to the case for a “fakeout”.

Hourly Chart
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Looking at the short-term chart alone, price remains bearish with the descending channel still very much in play. There are extra points for bearishness due to 0.791 holding, preventing any movement back towards the Channel Top. Despite this, there is still a likelihood that 0.785 may hold out successfully during current “bear cycle” as indicated by Stochastic. Readings are currently approaching the Oversold region, and looking at historical Stoch peaks and troughs, it is likely that Oversold would be reached just when 0.785 is being tested. That being said, overall pressure remains to the downside, and if fundamentals/sentiment don’t change, it is hard to imagine 0.785 holding for an extended period of time.

With the RBNZ rate decision slated for Thursday (Wed 5:00pm EDT), this may provide the shift in sentiment that bulls need. It is unlikely that the RBNZ will be cutting rates this time round, with housing prices remaining elevated. As much as RBNZ Gov Wheeler wants to slash rates to push NZD lower, he will not be willing risk having housing price accelerating on a higher gear. The question now is whether this would be bullish for NZD, or will market continue to push NZD lower following a initial rally? This largely depends on broad sentiment. Should price actually trade lower despite the RBNZ holding rates, bulls should run for the hills as it implies that the tsunami of bearish pressure is unstoppable, potentially making short-work of 0.785 (if it is still standing), and probably providing Weekly traders the confirmation for the bearish breakout.

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