Talking Points:
- NZD/USD failed to clear a key resistance zone between 0.7200 and 0.7250
- A "bearish engulfing" pattern might initially put focus on the 0.7120 area for possible support
- The pair may need to hold above that level for further bullish conviction
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The NZD/USD rally came to a halt yesterday, after the pair failed to clear the resistance zone we signaled in the last reports, closing below 0.7250 Tuesday before seeing a sharp daily move lower yesterday completing a “bearish engulfing” pattern.
At this stage, the technical picture seems clear.
Further downside action may see eyes initially on the 0.7120-0.7100 area for potential support. If that level manages to hold, bulls might breathe a sigh of relief, and another attempt higher could be initiated, targeting again the key resistance area between the 0.72 handle (which coincides with the 0.38 Fib of the downtrend starting from July 2014.) and 0.7250.
A break below 0.7100 (could follow from Friday’s NFPs) seems likely to put focus on the 0.70 handle which may be crucial for any bullish hopes. A move below that level could be indicative of buyers losing control and further downside may ensue.
Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing that about 41.9% of traders are long the NZD/USD at the time of writing. The SSI is mainly used as a contrarian indicator, implying a long bias.
You can find more info about the DailyFX SSI indicator here.
NZD/USD Daily Chart: August 4, 2016
--- Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com
To contact Oded Shimoni, e-mail oshimoni@dailyfx.com
Follow him on Twitter at @OdedShimoni
