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  • NZD/USD witnessed heavy selling on Monday and broke below the 0.7100 confluence support.
  • A subsequent fall below the 0.7060-55 might have shifted the bias in favour of bearish traders.
  • Oversold RSI on the 1-hourly chart warrants some caution before placing aggressive bearish bets.

The NZD/USD pair opened with a weekly bearish gap around the 0.7110-05 region and continued losing ground through the early European session on Monday. A sustained break below the lower boundary of a near two-week-old ascending channel was seen as a key trigger for bearish traders and aggravated the intraday selling pressure.

The imposition of tougher COVID-19 restrictions in the UK to contain the fast-spreading new variant of coronavirus and a deadlock in post-Brexit trade talks took its toll on the global risk sentiment. This, in turn, provided a strong boost to the safe-haven USD and drove some heavy flows away from the perceived riskier kiwi.

Meanwhile, the trend-channel support coincided with 200-hour SMA and subsequent break below 0.7060-55 horizontal zone might have already set the stage for additional losses. The NZD/USD pair now seems vulnerable to extend the sharp corrective fall from over two-and-half-year tops and slide further to the key 0.7000 psychological mark.

Technical indicators on the 4-hourly chart have just started drifting into the negative territory and losing positive momentum on the daily chart, adding credence to the negative outlook. That said, RSI on the 1-hourly chart is already flashing extremely oversold conditions and warrants some caution for aggressive bearish traders.

On the flip side, the 0.7095-0.7100 confluence support breakpoint now seems to capped any meaningful recovery attempt. Hence, a move back towards the mentioned support-turned-resistance might be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

NZD/USD 1-hourly chart

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Technical levels to watch