The downtrend that started on Monday is continuing strongly. The decline has been sparked by a resurgence of strength by USD and the sharp decline in AUD, dragging its neighboring counterpart along with it. The strength of current NZD/USD bears can be seen clearly today, judging by the lack luster rally following a better than expected Business Confidence index, which came in at 52.8 vs 50.1 previously. Price pushed up 20 pips higher following the news, failing to reach even the Asian session high before pulling lower once again.
This underlines the extreme bearishness of NZD/USD, which is interesting considering that price has successfully pushed above the multi-year support channel last week with the formation of a 3 White Soldier bullish candlestick pattern. Hence we should in theory see stronger bullish pressure arising this week, instead of seeing bearish sentiment taking control. Perhaps the increasing expectation of RBA cutting rates next Tuesday is rubbing off NZD as well. It seems market may be starting to discount the hawkish speech of RBNZ Wheeler given the high likelihood of RBA slashing its rate soon, especially since the recent statements about reintroducing higher rates in 2014 wasn’t that hawkish to begin with, as Wheeler continues to woo a weaker NZD.
From a technical perspective, it seems that the failure to break 0.81 may prove to be the bulls’ undoing, as price is currently trading back into the support Channel, opening up Channel Bottom as a viable bearish target for now. The immediacy of the decline following last week’s breakout increases the likelihood of a “fakeout”, and affirms the decline that has been in play since late April – early May. Considering that previous Stochastic Peaks have been around current Stoch levels, it shouldn’t be surprising to see readings turning back lower once more from here and extending the downtrend.
Hourly Chart sees price trading within a tight descending Channel with stochastic readings pointing lower. There is a clear divergence between price direction and stoch direction since yesterday, which increases the bearish cycle signal currently despite readings never hitting Overbought. Channel Bottom is the immediate bearish target, but price may perhaps go further and break 0.79 if we are able to continue trading within the descending Channel for the rest of the week.