Buyers start to turn the technical picture around
The NZDUSD buyers have started to turn the shorter-term technical picture around after the prolonged move lower. The recovery has come in steps, with each break giving buyers a little more confidence. However, there is still work to do before the recent gains can develop into a more meaningful correction of the broader decline.
Thursday’s moving average break provided the catalyst
The first step came on Thursday when the price moved away from the 100- and 200-hour moving averages (blue and green lines on the chart above). Those moving averages help define the shorter-term bias and give traders a reference for risk. When the price can move above both and build distance from them, it suggests sellers are losing some control and buyers are becoming more willing to step in.
That move provided the catalyst. Friday’s break above the swing area between 0.56225 and 0.5633 provided the next piece of technical evidence (see lower yellow area on the chart above).
Friday’s breakout gave buyers more confidence
Why does that matter? Swing areas identify levels where buyers and sellers have previously made decisions. When the price moves above a former ceiling, it forces traders to reassess. Sellers leaning against that resistance lose some of their technical protection, while buyers gain a level they can use to define risk on a pullback.
The break above 0.56225–0.5633 therefore strengthened the bullish shift and opened the door for the recovery to extend toward the next resistance zone between 0.5673 and 0.5686.
The next hurdle: 0.5673–0.5686
Several swing levels formed in that region during September before sellers pushed the price lower. As the price returns, traders will be watching to see whether sellers defend the area again or whether buyers can generate enough momentum to push through it.
For buyers, getting above the zone is one step. Staying above it is what would give the break more credibility. A brief move above resistance followed by a quick reversal would leave the market vulnerable to another rotation lower. Buyers would have had their shot, and a failure to hold the break would suggest sellers are still prepared to defend the broader downtrend.
A break higher targets the 38.2% retracement
A sustained move above 0.5686 would clear another obstacle and put the 38.2% retracement of the decline from the August high at 0.57258 in play.
That retracement is an important benchmark for judging the strength of the recovery. Buyers can make progress on the hourly chart while the broader move remains corrective. Reaching and eventually breaking the 38.2% level would add evidence that they are taking back more control. Until then, the recovery still has something to prove.
Former resistance becomes the support to watch
On the downside, the 0.56225–0.5633 swing area becomes the support zone to watch. The former ceiling now gives buyers an opportunity to show they can defend the breakout.
Holding above that area on a pullback would keep the recovery structure intact and give buyers a foundation for another push higher. A move back below it would weaken the breakout story and bring the hourly moving averages back into focus.
Follow the technical steps and define the risk
That is the value of following the technical steps. Each break creates a new target, but it also creates a reference for risk. Traders can judge the recovery by whether the price continues to clear resistance and then holds those levels as support.
The buyers have made progress. They moved away from the hourly moving averages and cleared the first swing area. Getting through 0.5673–0.5686—and staying above it—is the next test of their strength.
This article was written by Greg Michalowski at investinglive.com.
