AUD / NZD Outlook of the day

AUD/NZD

·         The greenback traded unchanged or lower against the other G10 currencies during the European morning Thursday. It depreciated against AUD, NZD, JPY and CHF, while it was virtually unchanged against EUR, GBP, SEK, CAD and NOK.

·         The Australian dollar continued its rally, taking the first place among today’s winners, driven by a 9.8% rise in firms’ estimates for capital spending for 2014/15, overshadowing a dip in actual capital expenditure in Q1. AUD/USD moved higher as it remained supported by the 0.9200 area, but the most noticeable move, from a technical point of view, came from AUD/NZD which surged above 1.0900, the upper boundary of the sideways path it’s been trading since the 13th of December 2013.

·         Gold continued declining and found support one dollar above our hurdle of 1250. Although we may experience a bounce near that zone (considering positive divergence between our momentum studies and the price action on the 1-hour chart), I still see a negative picture. A dip below the 1250 zone could open the way for the 1235 barrier.

·         AUD/NZD surged during the European morning, breaking above the key hurdle of 1.0900 and completing a short-term inverted head and shoulders continuation pattern*. On the daily chart the 1.0900 barrier is the upper boundary of the long-term sideways path the pair was trading since the 13th of December 2013. As a result I would expect the break to see as a first target the 1.1050 (R1) barrier, which coincides with the 161.8% extension level of the formation’s width. A successful move above that level could extend the advance towards the longer-term target of 1.1210 (R2), slightly below the 200% extension level of the width of the long-term sideways path between the 1.0530 and 1.0900 levels. Nonetheless, zooming in on the 1-hour chart, the RSI seems ready to exit overbought conditions, while the MACD shows signs of topping. As a result we may experience a pullback to test the 1.0900 obstacle as a support this time before the bulls take control again.

·         Support: 1.0900 (S1), 1.0850 (S2), 1.0785 (S3)

·         Resistance: 1.1050 (R1), 1.1210 (R2), 1.1310 (R3)

* Since an inverted head and shoulders formation has bullish implications, if it occurs after an uptrend it is considered a continuation pattern. Usually we identify the formation at market bottoms, signaling a trend reversal.