After two consecutive false breaks above the 0.7200 area on the daily chart, NZDUSD seems to be finally giving in to the selling pressure. The weakness we’ve seen over the last two days is the reason I kept the risk-sensitive pair on my watch list, as I pointed out over the weekend.
During yesterday’s session, the pair broke below the ascending channel I mentioned on Sunday, putting the second rally attempt in jeopardy.
For those who were on the lookout for short entries, the 1-hour chart above provided an excellent opportunity. The retest of former channel support along with the 0.7190 horizontal level as new resistance offered a low-risk selling opportunity.
But the larger play, in my opinion, has yet to materialize. While the pair found a bid at the 0.7180 handle during yesterday’s session, the next critical support doesn’t come in until 0.6986. A close below that would likely signal the end of the rally that began on May 30th, thus exposing prices that lie several hundred pips to the downside.
The 0.6986 level is the 50% Fibonacci retracement when measuring from the May low at 0.6675 to the June high at 0.7300. It has also attracted a firm bid on the last two retests starting in mid-June.
To be clear, the idea that a move below 0.6986 would likely intensify any bearish pressure does not imply that it will happen. If you’re not already short from the break in the chart above, the prudent decision may be to wait for additional weakness before considering an entry.
Keep in mind that between tomorrow’s US ADP employment change and crude inventories followed by Friday’s much anticipated NFP report, the next 48 hours promise to be quite volatile for NZDUSD. But for those waiting for 0.6986 to fall, that shouldn’t matter too much.
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