The NZDUSD looks indecisive following its 500 pip rally over the last six weeks. But we’ve seen this story before. The bearish engulfing candle on January 26th, which formed at the confluence of resistance at 0.7300 failed just three days after developing.
Over the past week, I’ve commented several times on how the safest way to take advantage of any reversal here is to wait for a daily close below the 0.7240 handle. Sure, you’ll miss out on a few pips, but in return, you get a setup with much more bearish conviction behind it.
Unlike the January 26th bearish pattern there is something else at work this time around. The U.S. Dollar Index (DXY) has broken free from the descending channel that has governed price action since the start of 2017.
I don’t often mention the DXY on this site, but it is an index that I pay attention to, especially when I’m considering taking on USD exposure.
So far the breakout above has only been confirmed on the 4-hour chart. We’ve yet to see a daily close above resistance, which will be a key factor in determining the true strength of today’s move.
Another consideration is that the 100.65 handle on the DXY lies just above current prices. This area will be a significant hurdle for buyers over the next few sessions. But so far, the price action hints at a resumption of the USD bull trend.
As for the NZDUSD, I maintain that the most prudent way to approach the pair is to wait for a daily close below the 0.7240 handle. Anything less is prone to failure given the recent bout of choppy and indecisive price action.
This wait-and-see approach is particularly appropriate given the upcoming RBNZ rate decision and statement. While nobody is expecting a change in the Official Cash Rate (OCR), every technical trader knows that what is said or done isn’t important. What matters is how the market responds.
The events kick off on Wednesday at 3 pm EST followed by two pressers at 4 pm and 7:10 pm EST.
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