NZD/USD surged yesterday after Fed Chair Powell’s remarks were interpreted by the market as dovish. The Fed chief noted that interest rates “remain just below the broad range of estimates of the level that would be neutral for the economy”. The dollar slid, and equity indices rose after his comments, as market participants, although still overly optimistic with regards to a December rate rise, pushed back their expectations with regards to the number of next year’s hikes.
This encouraged NZD/USD bulls to jump into the action and drive the rate above the resistance (now turned into support) barrier of 0.6820. That said, they failed to overcome the peak of the 16th of November, at around 0.6885, with the rate pulling back after hitting that barrier. Although the pair is still trading above the short-term upside support line drawn from the low of the 26th of October, we would like to see a decisive break above 0.6885 before we get confident on further bullish extensions.
Such a break is likely to drive the rate into territories last seen back in June and may initially aim for the peak of the 25th of that month, at around 0.6925. Another break above that level may encourage the bulls to set the 0.6955 hurdle, marked by the high of the 18th of June, as their next short-term target.
Looking at our short-term oscillators, we see that the RSI turned down after it hit resistance near its 70 barrier, while the MACD, although above both its zero and trigger lines, shows signs of slowing down. These indicators suggest that some further retreat may be in the works before the bulls decide to pull the trigger again, perhaps for a test at the 0.6820 level, or the aforementioned upside support line.
However, even if this is the case, we would still consider the picture as cautiously positive. We would like to see a decisive break below 0.6765 before we start examining whether the bears have taken the driver’s seat. Such a move is likely to confirm a forthcoming lower low on the 4-hour chart and could set the stage for the 0.6710 zone, marked by the lows of the 12th and 13th of November, or the 0.6690 hurdle, defined by the inside swing high of the 2nd of the month.
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