NZDUSD removes some of the oversold from the market. What next?
NZDUSD reached all-time highs during Asian trading hours last Thursday and experienced two consecutive days of sharp declines (last Thursday and Friday). The downtrend momentum technically kicked off on Thursday with the pair dropping below the uptrend line and the 100-hour moving average. The downward trajectory intensified on Friday, breaking below both the rising 200-hour and 100-day moving averages.
In Friday trading, the currency pair hit a low of 0.6181. After a massive drop of about 200 pips within 40 hours, the pair has fallen below both the 50% and 61.8% retracement levels, indicating a significant oversold condition. While it is difficult to pinpoint market bottoms during sharp declines (markets can become increasingly oversold), a rebound above the short-term volatility region around 0.6202-0.6206 is indicative of oversold pressure. It helped ease some and gave bargain hunters something to believe in. At least in the short term it will (see the red number circles in the chart above).
However, subsequent corrective actions have been relatively limited. Over the past 6-7 hours, the price has been gradually declining, but is trying to hold support against the 0.6202-0.6206 area. In the very short term, this region will likely widen to 0.6200 and serve as the level that determines important support and bias. If the pair sustains above this level, we could see a further upside turn. Conversely, a break below this level will likely see sellers regain control and continue the downward momentum.
Going forward, the area between 0.6154 and 0.6162 is a potential downside target, and the 200-day moving average falls within this moving area at 0.61586.
