NZDUSD has recently formed a double bottom pattern on its 4-hour time frame and seems to be confirming the potential reversal, as price has already broken above the neckline of the chart pattern at the .7600 major psychological resistance. At the same time, the shorter-term exponential moving average has crossed above the longer-term EMA, indicating that an uptrend may take place.
Stochastic is already indicating overbought conditions on the 4-hour chart though, which means that buyers are exhausted and that a pullback might take place before price heads any hither. Price could still retreat to the broken neckline resistance at the .7600 level or slightly lower to the .7500 area of interest.
If a deeper selloff occurs, it could be indicative of a fakeout, which might still allow NZDUSD to head back to its former lows around the .7200 major psychological support. In that case, a triple bottom formation might be created and this is still a valid reversal signal.
If the breakout and reversal confirmation is a valid one, NZDUSD could head higher by around 400 pips, which is the same height as the double bottom chart pattern. This could take price back up to the .8000 major psychological resistance, which is an area of interest visible on the longer-term charts.
The path of least resistance is to the upside for now, as risk appetite is present in the financial markets after the FOMC indicated that they might hike interest rates much later than initially anticipated. This longer period of low rates could allow more consumers and businesses to take advantage of cheaper credit and ramp up their spending.
Take note that the RBNZ has also indicated that they’re not looking to ease monetary policy anytime soon, which also suggests a hawkish bias for the central bank and potentially further gains for the Kiwi.
By Kate Curtis from Trader’s Way