NZDUSD yesterday reached the 0.65 resistance zone, where it was again rejected for the second time in a month after getting stopped here in mid-December. Evidently, bearish pressures are sufficiently strong above 0.65 that NZDUSD has reversed twice already. This resistance here is now solidified.

The rejection move above 0.65 for NZDUSD came yesterday after some hawkish comments from Fed officials, suggesting that interest rates will remain high for some time before the Fed can consider rate hikes. This is at odds with market pricing, which now has 50 bp of rate cuts late in 2023 as the base case for the Fed. This recent dovish repricing in markets is the main factor behind the sharp USD decline since October.

With yesterday’s daily close, NZDUSD completed a bearish shooting star pattern on the daily chart (also known as bearish hammer). This is now a signal that further downside action is likely. The RSI indicator is also into bearish divergence here, with the most recent high having a weaker RSI momentum than the previous high (see chart).

There is obviously a potential for a bigger reversal play here via a double top pattern, which if completed, could signal wider bearish implications for NZDUSD. However, for this tactical trade idea, we are focusing on the short term and are playing on the recent rejection at 0.65 as part of a horizontal trading range (between 0.65 and 62). Our target is toward the 0.62 zone at the lower end of the range.

Taken together, all those signals in the current overall picture and at the technical juncture suggest NZDUSD may be ready to move lower now. The risk-reward is sufficient based on the predetermined stop loss and TP target distances (as described below). 
 

Trade Plan

Entry:

• For the entry trigger, switch to the 4H chart (see below) 
• Wait and look for a breakout below the ascending trendline here;
• NZDUSD is bouncing at the trendline today around 0.6375

Stop:

• Above the most recent swing high on the 4H timeframe;
• At the moment, that is still yesterday’s top above 0.63 (0.6330 exact)

Target:

• Toward the 0.62 support zone. This is the previous most recent swing low (as also shown on the daily chart)