NZD/USD Down 150 Pips From Yesterday's Peak, But Potential For More Weakness Print
Daily Forex Technicals | Written by | Apr 03 14 01:37 GMT

NZD/USD Down 150 Pips From Yesterday's Peak, But Potential For More Weakness

On Friday, we highlighted the NZD/USD as it approached 31-month highs (see below). Though the pair was in a strong uptrend, the technical 'cracks beneath the surface' suggested an elevated probability of a top near .8675. After retesting the highs at .8675, rates reversed sharply to the downside yesterday and the unit has since broken below its 8-week bullish trend line. Though the pair is now off nearly 150 pips from Tuesday's high, technical signs point to the potential for more downside later this week.

At this point, the selling pressure shows no immediate signs of abating. The pair put in a prominent Bearish Engulfing Candle* yesterday, and a close near current levels would create a Bearish Marubozu Candle* today. Both of these candles indicate strong selling pressure and increase the likelihood of more weakness over the next week. In addition, the lagging MACD indicator has also turned lower, with the MACD line crossing below its signal line for the first time since early February. With the indicator historically elevated, a rapid drop is possible from here.

As we go to press, the pair is testing its first meaningful Fibonacci support level, the 23.6% retracement at .8547. A near-term bounce is a distinct possibility from here, but in time, a deeper retracement toward at least the .8500 round handle or the 38.2% Fibonacci retracement at .8452 is favored. Only a confirmed break and close above the key .8675 would turn the near-term bias back to the topside.

* A Bearish Engulfing candle is formed when the candle breaks above the high of the previous time period before sellers step in and push rates down to close below the low of the previous time period. It indicates that the sellers have wrested control of the market from the buyers.

* A Marubozu candle is formed when prices open very near to one extreme of the candle and close very near the other extreme. Marubozu candles represent strong momentum in a given direction.


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