After a month confined to a range, AUD/NZD could be building up towards another leg lower. The decline from 1.0865 came hard and fast, shedding over -4.4% in five weeks. That there were no pullbacks apparent on the daily timeframe serves as a testament to the strength of its decline. Sure, it’s effectively ranged between 1.0388 – 1.0488 since, but the bias is for a bearish breakout as the preceding move into the sideways range was bearish. And we could be approaching the time for a downside break.
Naturally, risk-off sentiment stemming from the Middle East has seen downwards pressure on both AUD and NZD, forcing them both to test key support levels. However, if we compare the trend structure of AUD/USD with NZD/USD, the latter has the upper hand from a bullish perspective; NZD/USD rallied over 8% from its October low to January’s high, whilst AUD/USD managed just over 5% during the same period.
Domestically, Australia is experiencing bushfires like never seen before, and markets are veering towards a February rate cut with a 53% probability (a weak employment and / or CPI print this month will all but seal its fate for a cut). At the same time, data for NZ continues to outperform AU on a relative basis overall. Furthermore, price action is leaving clues of a bearish breakout.
- A bearish engulfing candle marked a prominent swing high at 1.0488. Moreover, a bearish pinbar last week failed to re-test this key level to show supply around the highs.
- Yesterday’s elongated bearish candle respected the 20-day eMA and closed on the low of the range. Today’s price action is considering a break lower ahead of UK open.
- Bears could enter a clear break of yesterday’s low and target 1.0300 (just above structural lows in 2019).
- Whilst daily trend is bearish below 1.0488, bears could use the candle highs around 1.0450 to aid with risk management and potentially improve reward to risk ratio.
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