It goes without saying that NZD/USD has been under heavy selling pressure overall this year. Yet, one by one clues are surfacing that this trend is under threat.
The bearish channel from the June high has been breached today and, if weak USD sentiment continues through the European and US sessions, it’s on track to warn of a reversal with a daily close confirmation above the bearish trendline.
Taking a step back its worth noting the subtle loss of momentum within the channel since August, as the two recent structural lows failed to test the lower channel. More recently a prominent bullish pinbar has formed a higher low at 0.6465 and prices are now keen to confirm a higher high.
Furthermore, traders reduced their net-short exposure on NZD at their fastest pace in 14 months last week. Considering short covering has been seen following a record level of short exposure, we could argue cracks are appearing in the bear case and each tick higher is hurting a lot of bears right now.
Although this level may prove a tough nut to crack initially as it’s a key structural level which houses a dark cloud cover reversal. So, we’d expect it to be a closely guarded level with stop just above it, but on the plus side they could add more fuel to a bullish fire if triggered. And today’s bullish range expansion looks ready for that challenge.