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NZD/USD in a Double Bottom and Trendline Breakout

Bullish Breakout: NZD/USD has started this week with a bullish breakout. As we can see in the daily chart, price action completed a double bottom and broke above a falling trendline coming down from the 0.8835, 2014-high from July last year.

NZD/USD Daily Chart 3/24

(click to enlarge)

Bullish Signs: Furthermore price has crossed above the 50-, and 100-day simple moving averages (SMAs), which reflects loss of the prevailing bearish bias. Meanwhile, the RSI is threatening to clear 60, which would also reflect a loss of the prevailing bearish momentum.

The NZD/USD is essentially starting to look bullish at least for the short to medium-term. We might still respect the prevailing downtrend in the longer medium-term, but the latest bullish breakout opens up some upside risk first.

Bears Could be Lurking: Actually, it is often right when the market starts to look bullish that will give bears an opportunity to fade the rally. For NZD/USD, the 0.77 handle should be a key challenge today. From the daily chart we saw that around 0.77 is the previous consolidation range support area, which could act like support in a bearish market.

NZD/USD 4H Chart 3/24

(click to enlarge)

Overbought: When we drop down to the 4H chart, the RSI shows overbought condition. Other than the bullish swing from last week, NZD/USD does not have a prevailing bullish trend, so the overbought condition should mean something in the short-term.

Key factors Around 0.74-0.7450: Now, if price does fall back from 0.77, let’s also keep a cautious outlook to the 0.74-0.7450 area. We can say this is the central pivot area of the broken double bottom. In the 4H chart it contains the cluster of 200-, 100-, and 50-period SMAs. If price does retreat back to 0.74, it might also test a rising speedline from last week.

Assessment after Monitoring 0.74: The inability to break back below 0.74 could help confirm the double bottom we saw in the daily chart.. In this scenario, there would be upside risk above 0.77 towards the previous consolidation highs in the 0.80-0.8035 area.

Otherwise, a break below 0.74 would likely revive the prevailing downtrend and put pressure on the 0.7176 low on the year.