NZD/USD struggles to retain the rebound from the yearly low (0.5469) even though US authorities take unprecedented steps to curb the weakening outlook for growth, and the recent rebound in the exchange rate may unravel over the remainder of the month as the Relative Strength Index (RSI) continues to track the downward trend from earlier this year.
The improvement in investor confidence may keep NZD/USD afloat, but the nationwide lockdown in New Zealand may put pressure on the Reserve Bank of New Zealand (RBNZ) to further support the economy as the “domestic measures to contain the outbreak of the virus are also reducing economic activity.”
From a technical point of view, the 4H chart shows RSI hidden bearish divergence as the price makes lower highs and the oscillator higher highs. In the current flag formation and break of the uptrend, this would mean continuation of the bearish momentum.
The daily chart shows resistance levels between 0.5921-0.6040 where the 38.2% Fibonacci of the last down move is located and a support level of about 0.5630. The RSI oscillator is in bearish territory at 31.34, with diagonal resistance also pushing down the indicator.
The weekly chart shows a breakdown from a bearish formation – descending triangle. Weekly orderblocks can be found around these levels:
Support: 0.5620 – 0.5801
Lack of interest from buyers around the weekly orderblock would accelerate sales and we can expect a decrease of NZD / USD to the next weekly level – around 0.5000, which is also the price target of the flag formed on the 4H chart.
If the price of the horizontal resistance is rejected and the level of 38.2% Fibonacci – 0.59369-0.59605 we take a short position with a short target – a new test at the lowest annual level – 0.54691 and a medium term target – new low values around the weekly level of 0.5000. Stop Loss Above Daily Resistance Level (0.6045) – 0.6072.
Alternative scenario: A break of the daily chart above 38.2% Fibonacci and a horizontal resistance of 0.60484 would mean a deeper upward correction to the level of 61.8% Fibonacci – 0.62642, where price action will have to be observed for taking a short position.
Junior Trader Radi Djuma