NZDUSD is recording another red candle as the bears are again trying to stage a breakout from the rectangle that has been in place since February 2023. This is actually the third breakout attempt since early June 2023. Interestingly, the first target of the bears appears to be to register a lower low, breaking the recent series of higher highs and higher lows developing since the May 31 local trough, and then stage a decisive downleg. Maybe, the continued convergence of the simple moving averages (SMAs) could play a role soon in the bears’ favour.
The momentum indicators are mostly on board with the current pullback. More specifically, the RSI is edging well below its 50-threshold and the stochastic oscillator has just returned to its oversold territory. It can stay there for a considerable amount of time, especially as its moving average is still above the 20-threshold level.
Should the bears feel confident, they would first try to overcome the support set by the 0.6060-0.6092 range that is populated by the 38.2% Fibonacci retracement and the July 14, 2022 low respectively. They would then have the chance of recording a lower low and push NZDUSD below the 2023 of 0.5984, setting their eyes on the May 15, 2022 low at 0.5920.
On the flip side, the Average Directional Movement Index (ADX) is a tad below its 25-threshold and thus pointing to a range-trading market. This probably helps the bulls to remain calm as they plan their counterattack. Defending the 0.6060-0.6092 area would be significant from a short-term perspective, potentially giving them the necessary boost to lead NZDUSD higher towards the 0.6163-0.6226 range. This is defined by the 50-, 100- and 200-day SMAs and hence could prove much tougher to crack.
To conclude, NZDUSD bears remain focused on recording a decisive breakout as they are currently working their way through a strong support area that the bulls appear ready to defend.
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