NZDUSD has finally managed to break below the rectangle that has been dictating the price action since February 2023, as NZD bears continue to recover part of the losses they have been suffering by the rally that commenced on October 13, 2022. However, the downside breakout has not been impressive as NZD bulls appear determined to halt this correction.
Having said that NZD bears probably feel in control of the market. The Average Directional Movement Index (ADX) is edging higher, signaling a strong bearish trend, and the RSI is hovering well below its 50-midpoint. More interestingly, the stochastic oscillator remains stuck at the lower end of its oversold territory. Although it can hover in this area for a while, its most recent moves are also a sign that the bearish pressure could soon abate.
If the NZD bears try to further capitalize on the bearish breakout, they would target the 0.5920 level set by the May 15, 2022 low. The 23.6% Fibonacci retracement of the April 5, 2022 – October 13, 2022 downtrend at 0.5870 could prove tougher to crack than anticipated. However, if broken, it could open the door for a more sustainable move towards the October 13, 2022 low of 0.5511.
Should the NZD bulls decide to negate the current bearish move, they would have to recapture the 0.6060-0.6092 range populated by the 38.2% Fibonacci retracement and the July 14, 2022 low respectively. A return of the NZDUSD pair back inside the recent rectangle would be a short-term victory for the NZD bulls and quite important for market sentiment.
To sum up, the bearish breakout is significant, but NZD bears have to push for a stronger correction to avoid calls of a false breakout.
