NZD/USD Rate Rebound Emerges Within Head-and-Shoulders Formation


Image of NZD/USD rate daily chart

Source: Trading View

  • Keep in mind, NZD/USD cleared the June 2018 high (0.7060) in December as it climbed to fresh yearly highs throughout the month, with the Relative Strength Index (RSI) pushing into overbought territory during the same period as the oscillator established an upward trend in the second half of 2020.
  • NZD/USD took out the 2020 high (0.7241) during the first week of January to come up against the Fibonacci overlap around 0.7330 (38.2% retracement) to 0.7350 (23.6% expansion), with the bullish price action pushing the RSI into overbought territory.
  • However, the move above 70 in the RSI was short-lived as the indicator failed to retain the upward trend from 2020, with the oscillator indicating a textbook sell signal during the first week of January as it quickly fell back from overbought territory.
  • A similar development occurred toward the end of February as NZD/USD pulled back from a fresh yearly high (0.7465), but a head-and-shoulders formation has taken shape, with the exchange rate slipping below the neckline as it failed to defend the opening range for March.
  • NZD/USD has snapped the series of lower highs and lows from the previous week amid the failed attempt to break/close below the 0.6940 (50% expansion) to 0.6960 (38.2% retracement) region, with the exchange rate approaching the former support zone around 0.7070 (61.8% expansion) to 0.7110 (38.2% expansion) as the RSI struggles to push into oversold territory.
  • The RSI may show the bearish momentum abating if the indicator manages to break out of the downward trend from earlier this year, but the recent rebound in NZD/USD may end up being short-lived if the oscillator continues to track the bearish formation.
  • Need a break/close below the 0.6940 (50% expansion) to 0.6960 (38.2% retracement) zone to bring the 0.6810 (38.2% expansion) to 0.6870 (50% retracement) area on the radar, with the next region of interest coming in around 0.6710 (61.8% expansion).
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