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The New Zealand dollar has staged a minor pullback against the US dollar, following last weeks rejection from the 0.7170 resistance area, which also marked a new multi-year high for the NZDUSD pair.
Similar to the AUDUSD, the NZDUSD pair is extremely risk-sensitive, and is likely to find direction this week from the stock market, US stimulus news, and the latest developments surorunding the new strain of COVID-19.
Something else interesting is also going with the NZDUSD pair at the moment. Due to the COVID-19 virus, the New Zealand and Australian dollar are both currently similarly valued against the US dollar currency.
This is due to the fact that the New Zealand economy has appeared to fare well during the pandemic, while vast parts of Australia have been under strict lockdown measure, which has no doubt harmed Australia’s economy.
The AUDNZD pair moved close to parity earlier this month, although it has been recovering somewhat higher since the start of the month, and the Australian dollar has also picked-up against the greenback.
With the US dollar index falling, and the downtrend showing few signs of stopping, it would appear that the New Zealand dollar still has further to climb, even though it is still trading at historically high levels.
Technical analysis on various time frames shows a clear path towards the 0.7350 to 0.7400 area, as long as NZDUSD bulls can keep the price above the psychological 0.7000 handle in the near-term.
NZDUSD Short-Term Technical Analysis
The four-hour time frame shows that a large head and shoulders pattern has recently formed, following last weeks rejection from the 0.7170 resistance level.
According to technical analysis the neckline of the bearish pattern is located around the 0.7000 level, making this a key area that bulls need to defend this week to avoid the pattern being activated to the downside.
Source by ActivTrader.
According to the size of the pattern, the NZDUSD pair could drop towards the 0.6850 area in the short-term. To the upside, if the pattern is invalidated then a powerful counter-rally and a continuation of the uptrend should be expected towards the 0.7300 region.
It should be noted that bullish patterns do have a high tendency of being invalidated during bull trends, so with that said, it is still fairly risky trying to sell a breakout under the 0.7000 level without a clear bearish fundamental catalyst.
NZDUSD Medium-Term Technical Analysis
Looking at the daily time chart, a breakout above a massive inverted head and shoulders pattern is in play while the price trades above the 0.7050 level. The overall size of the pattern suggests a possible rally towards the 0.8500 area over the medium-term.
Daily time frame analysis shows that the pair has very limited technical resistance above the 0.7170 area, with the 0.7350 and 0.7400 levels offering the only notable resistance until the 0.7500 handle.
Source by ActivTrader.
Traders should be aware that the daily time frame shows notable amount of negative MACD price divergence. The divergences are currently located at the 0.6910 and 0.6800 support areas. If we see a clear break under the 0.7000 handle then it is likely that these bearish divergences will be unwound.
