Most of the currency pairs remained in tight ranges in the FX market this past week. The U.S. dollar printed slight gains versus its major peers. But if we looked at USD/CHF, which used to play a role of a leading indicator for the greenback across the board, we’d notice that weekly red candles are followed by green ones for the 7th week in a row. That sequence shows nothing but uncertainty in terms of further trend’s direction for the world’s reserve currency. This is why I decided to pay attention to cross-rates, especially in the scope that some of them charted attractive patterns. This week’s technical take is about the cross-rate of Aussie versus Kiwi – AUD/NZD – as it does not depend on the greenback.
Thanks to a sudden strength of the New Zealand dollar, which was supported by unexpected hawkishness of RBNZ this month, AUD/NZD has been unusually volatile. The weekly chart below shows that the exchange rate lost 250 pips or 2.35% in two weeks, which is a quite large drop. Traditionally, both currencies show a similar performance as economies are related to each other. The plunge was noticed after AUD/NZD peaked at 1.08658, the highest rate in 12 months. So the question is always the same when it comes to such sharp price actions. Do we see a retracement and the uptrend will resume or is that a complete reversal?
The first chart setup contains mainly graphical analysis with three exponential moving averages. The general trend starting in October 2017 is headed south, therefore, this year’s upside swing is nothing but a technical retracement to the upper range of the downtrend (descending blue trendline on the chart). Given the sharp bounce off resistance, the upside correction is finished. Next, both long-term EMAs (89- and 144-weeks) are placed in the bearish order, while the bullish movement of short-term EMA21 was not consistent in terms of a potential crossover. So, answering the main question, there’s no uptrend in place. There’s just a bullish retracement, which has almost come to an end.
The next question is about valid support levels, which would confirm the previous conclusion. And we have a clear answer on the chart below. The crossover of two trendlines is exactly the threshold, the breakout of which might accelerate the downtrend, while a bounce off it would add uncertainty. The green ascending line is a support trendline of the bullish channel. It used to limit the bears in July 2019 (we do not take whipsaws into account here, only weekly close rates). The second line of the crossover is the blue dashed median, which is nothing but a parallel clone of the resistance line. The median worked well, indicating take-profit levels several times before, and the bears could also use this line to close fresh shorts this time as well. As a result, we have horizontal support at 1.04950. If the bears were strong enough to break the rate through that level with the weekly close rate, then we’d see a fourth test of the long-term support at 1.02920 (since December 2018).
Another weekly chart setup is shown below. The Ichimoku trend indicator confirms the previous conclusion as the bottom band of the Cloud is coming at 1.05014 for the week ahead. Although the leading span turned bullish 10 weeks ago, AUD/NZD failed to proceed with the uptrend, breached the initial support (Conversion Line) and entered the cloud, which points to uncertainty or consolidation. The nearest support is represented by the Ichimoku’s Base Line (1.05651), which has not confirmed the recent bullish breakout as it remained inside the cloud. That level will be the key threshold to watch for the bears because the breakout would lead to a test of the support level mentioned above.
The bearish scenario is very likely, according to technical indicators under the price chart. ADX has a large negative surplus, its main line is below the threshold, pointing to bearish momentum. Stochastic RSI performed the bearish crossover under the overbought level, and its lines are headed south with a lot more room to go before reaching the oversold territory. So nothing holds AUD/NZD from a test of the 1.0500 handle from a technical analysis point of view.
The Double-Bolli daily chart setup points to growing volatility as borders spread the range. AUD/NZD is in the bearish channel below BB with deviation 1, which underlines the strong downtrend. The selling pressure is likely to remain until daily close price stays below the yellow background. The True Strength Indicator turned bearish with growing negative momentum. The sell-highs trading strategy looks very promising in the week ahead. Best wishes traders!!
This post is contributed by MyFxLab. MyFXLab provides daily technical analysis written by professional traders. The site was founded by former Goldman Sachs FX traders and executives from some of the world’s largest brokers.
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