Will AUD/NZD Continue Trending South?

 | Feb 03, 2021 07:10AM ET

AUD/NZD traded higher during the European session Wednesday, after it hit support near the 1.0540 barrier overnight. Overall though, the pair continues to print lower highs and lower lows below a downside resistance line drawn from the high of Jan. 20, and thus, we would consider the short-term outlook to be negative.

A clear and decisive break below 1.0540 would confirm a forthcoming lower low and may initially target the 1.0513 hurdle, defined as a support by the low of December 8th. Another break, below 1.0513, may encourage the bears to push the battle towards the low of Dec. 3, at around 1.0475.

Shifting attention to our short-term oscillators, we see that the RSI rebounded and just poked its nose back above its 30 line, while the MACD, although below both its zero and trigger lines, shows signs of bottoming as well. Both indicators detect slowing downside speed, which suggests that some further recovery may be on the cards before the next leg down, perhaps for the rate to challenge the 1.0595 barrier.

Nonetheless, in order to abandon the bearish case and start examining a bullish reversal, we would like to see a rebound back above the 1.0623 level, marked by Monday’s inside swing low. Such a move may confirm the break above the aforementioned downside line and could initially target Tuesday’s peak, near 1.0675. If that barrier is not able to stop the bulls, then a break higher may allow a test near 1.0713, marked by the high of Jan. 28.