Looking at our daily charts we notice a interesting trading opportunity when approached from a technical perspective - this is to mean that the fundamentals will play their role but our scenario is still valid from a technical standpoint. Our attention is drawn to the Kiwi, the cross between the New Zealand Dollar and the US Dollar, which has been on a downtrend since mid-June.
However, over the past couple of weeks we've noticed a series of bullish signals as seen on the 4-hour chart above. The combination of a higher low posted at July 25th - when compared with the lows at July 13th and 19th - and the divergence between the price action and momentum - illustrated by the rising MACD lows seen above - suggests that sellers are losing their grip on the pair. At the same time, the Kiwi has been consistently trading within a descending channel seen above since early July but prices have been consolidating near the upper limit of this channel over the past week, threatening to break out of it and to the upside.
When we go down to the 1-hour chart, further signals for a move higher appear.
If you notice the right side of the chart, you will locate an inverted Head and Shoulders pattern having formed, suggesting that prices are poised to break higher in the short term, which would coincide with an exit from the descending channel we indicated on the 4-hour chart. Summarizing our point, we believe that there's a number of technical indications hinting that NZD/USD will reverse higher both in the short-term and medium-term horizons.
Looking to time our long entry, we think that a break above the 0.6830 level will be the key trigger as it would signal the exit from the descending channel (seen on the 4hr chart) and also penetrate the “neck line” of the inverted H&S formation (found on the 1hr chart). The only thing missing is to identify our potential targets but here the left side of both charts helps up: the monthly highs at 0.6860 will be our immediately area of focus and an extension higher brings the 0.6920 area to the fore.
Written by Konstantinos Anthis, Head of Market Research