The New Zealand dollar has been getting on the foreign exchange market against the US dollar last week, due to a double-whammy of bearish fundamentals developments that have hurt commodity currencies.
Much of the losses in commodity-related currencies have been down to fears over the new Omicron variant, which has the potential to cause more global lockdowns and dent economic growth.
Another big factor is the US dollar currency. Recent comments from FED Chair Powell suggest that the central bank is going to taper further and at a greater speed to fight inflation.
On the technical front, the NZDUSD pair has recently crashed to a new yearly low. This is bad news on the technical front and opens the flood gates to further for further downside over the short to medium-term.
Technical analysis highlights that the NZDUSD pair could drop below the 0.6700 level over the coming days and weeks, following the break down below the 0.6830 support zone.
According to the ActivTrader market sentiment tool some 77 percent of traders are bullish towards the NZDUSD pair. As we typically look to fade sentiment biases, this could mean the NZDUSD pair could test much lower.
It is worth mentioning that high levels of bullish sentiment suggest a classic contrarian sentiment trade is still in the making, so do be careful buying this pair, especially with technical analysis pointing towards 0.6600.
NZDUSD Short-Term Technical Analysis
The four-hour time frame shows that a bearish head and shoulders pattern is in play while the NZDUSD pair trades below the 0.6860 level. Typically this is not a good sign for bulls.
If the neckline breakout holds then a decline back to the 0.6000 region seems plausible. If a recovery takes hold, then a rally towards the 0.6880 resistance level is more likely in the short-term.
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NZDUSD Medium-Term Technical Analysis
The daily time frame shows that the pair is falling towards the bottom of large falling price channel pattern. These types of patterns are typically considered to be classic bullish reversal pattern.
According to technical analysis a retest of the channel bottom seems more likely than while the NZDUSD pair trades above the 0.6900 level. Buying a retest of the bottom of the wedge seems the best strategy for the bulls.
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