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AUD/NZD: on the verge of breakdown?

The AUD/NZD is probably not under many traders’ radars at the moment given for example the sharp moves in stocks and the US dollar recently, but this cross could be one for those who would like to take the greenback totally out of the equation.  The AUD/NZD surged higher in early April from a low of just above parity to a high so far this year of about 1.1425/30. The rally thus took out the 2014 high of 1.1300. But as can be seen on the chart, the bulls were unable to hold their ground there for too long and prices have generally held below this handle for this best part of the past two months, without causing too much pain for the bulls.

But now, the AUD/NZD looks to be on the verge of making a more profound move to the downside. That is because it has broken below its 50-day moving average, a bullish trend line and key short term support at 1.1100.  It has also created a few lower highs, and formed a potential double top reversal pattern at 1.1300. Thus, should the cross hold below 1.1100 on a closing basis then it may go on to drop below the next support at 1.1020 before heading for the more significant 1.0890/1.0900 area. The 1.0890/1.0900 area is where the July low meets the 38.2% Fibonacci retracement level of the upswing from April. Meanwhile the MACD is also rolling over as it hovers near zero and in the process of possibly creating a bearish crossover. This suggests that the bullish momentum is waning.

Conservative traders may wish to wait for a clear trend to emerge before taking a view on this pair. A potential closing break below the above-mentioned key support at 1.0900 would be a decisively bearish development while a closing break above the 1.1300 handle would be bullish. A move outside of this 1.09-13 range could then lead to a sharp continuation move in the direction of the breakout. On the downside, the next major support could be the 200-day average around 1.0690, while on the upside the next major target could be the prior high of 1.1425 or the long-term 38.2% Fibonacci level at 1.14660.

Figure 1:


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