After a period of weakness that consumed the month of May, NZDUSD has come back with a vengeance in June. So far the pair is up 300 pips since the month began.
However, following last Wednesday’s RBNZ rate decision, the kiwi ran into a brick wall against the greenback. The upper boundary of the channel that extends from the July 10th, 2015 high held its ground, causing buyers to retreat to nearby support at 0.7053.
You may remember this from last week’s commentary as the former double top that was carved out between April and May. So far, this level has held as new support on a daily closing basis.
But the way the pair acted during yesterday’s session coupled with its proximity to the previously mentioned eleven-month resistance would have me concerned if I had bullish intentions (which I don’t).
Why is that, you ask?
The longer a market hovers near support or resistance without finding follow through, the more likely it is that the level will eventually fail. This notion is similar to the clustering price action that I have mentioned in the past.
Take the 4-hour chart below for example.
Notice how these inflated prices don’t appear to be as attractive to buyers as they were on two separate occasions in early June when the rate was much lower. This could be an indication that the market believes NZDUSD to be overvalued above 0.7053.
With this in mind, there are two ways to take advantage should the pair break down from here. A 4-hour close below the confluence of support at 0.7053 could open the door for a move toward the next support level at 0.6953.
On the other hand, for traders who need more confirmation before pulling the trigger, a daily close below the same level would indicate that sellers have regained control.
Either way, do be mindful of this Wednesday’s FOMC rate decision at 2 pm EST as it is sure to make waves for any US dollar pairing.
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