The AUD/NZD pair is pressing against a major support area after a 7-week sell-off. As can be seen on the weekly chart, below, this currency pair is hovering dangerously around the 1.05 handle – the low it had reached back in January. Slightly below this key level is the 2005 low at 1.0425. This makes the 1.0425-1.0500 range a key support area. Therefore a potential break below here may lead to follow-up technical selling which could send rates sharply lower as the year-end approaches. There’s potential for price to even reach parity at some point in the near future should the bears win this battle at the third time of asking. However, given that the AUD/NZD has already lost some 800 pips over the past seven or so weeks, there is also a good chance that rates may stage a rally here on short-side profit-taking and/or opportunistic buying. Conservative traders may therefore wish to wait for confirmation before pulling the trigger. As mentioned, a (daily closing) break below this range would be a particularly bearish outcome. The buyers on the other hand will want to see the formation of a bullish-looking pattern here, for example a hammer, doji or a bullish engulfing candlestick. The bullish argument is bolstered by the fact that the MACD is in a state of positive divergence. However the bears would point to the fact the MACD has crossed the signal line to create a bearish crossover, which, as its name suggests, is anything but bullish.
Figure 1:
Source: FOREX.com.
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