NZD/USD Technical Analysis: Rare Candle Setup Hints at Topping

NZD/USD Technical ANALYSIS: BEARISH

• NZ Dollar top may be in place, marked by 3 Black Crows candle setup
• Breaking below near-term range floor needed to secure confirmation
• Trader sentiment studies flashing warning sign for would-be sellers

The New Zealand Dollar may be preparing to resume the downtrend against its US counterpart after the Fed’s move to make QE open-ended triggered a broad-based reversal across financial markets. The appearance of a somewhat rare bearish Three Black Crows candlestick pattern now suggests that the rise may have run its course after meeting resistance below the 0.61 figure.

NZD/USD daily chart created using TradingView

Nearer-term positioning on the four-hour chart seems to bolster sellers’ argument, showing a break of counter-trend support guiding NZD/USD higher over the past two weeks. A break below resistance-turned-support in the 0.5877-0.5918 area seems needed as confirmation to make the case for downward follow-through. Without that, a period of consolidative drift may yet precede another foray upward.

If a breach of support does materialize, downside hurdles at 0.5774 and 0.5584 line up along the way to testing the March swing bottom at 0.5466. Alternatively, a push above the 0.5981-88 price inflection zone might set the stage for a return to challenge recent swing highs just below the 0.61 figure. Establishing a foothold above that seems like a prerequisite for neutralizing current selling pressure.

NZD/USD 4-hour chart created using TradingView

NZD/USD TRADER SENTIMENT

Retail sentiment data shows 57.44% of traders are net-short, with the short-to-long ratio at 1.35 to 1. IG Client Sentiment(IGCS) is typically used as a contrarian indicator, soretail traders being net-short suggests NZD/USD may be biased upward. Furthermore, traders are more net-short than they were yesterday and compared with a week ago, which bolsters the sentiment-derived upside tilt.

See the full IGCS sentiment report here.

NZD/USD TRADING RESOURCES:

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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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