NZDUSD Triangle Breakdown (Aug 12, 2015)

The pair broke below the .6500 major psychological level and could be in for a 300-pip drop, which is the same height as the chart formation.

Stochastic is pointing down, indicating that sellers are taking control of price action. RSI is also on the move down, confirming that bearish momentum is building up. However, the 100 SMA is moving close to the 200 SMA and attempting an upward crossover, which could mean that a bounce is still possible.

If the pair moves back above the .6500 support area, price could climb back up to the top of the triangle around the .6600 major psychological level. Sustained upward momentum could spur an upside break and a longer-term climb for NZDUSD.

The path of least resistance is to the downside though, as the PBOC recently decided to devalue their currency. Although central bank officials said that this is just a one-time move, their statements suggest that they’re open to more devaluation depending on market moves.

These PBOC efforts are suggesting that the Chinese central bank has gotten increasingly concerned about the country’s trade activity. Earlier in the week, China printed a trade balance that indicated a sharp decline in both imports and exports. By devaluing their currency, they could make their exports relatively cheaper and therefore increase demand. At the same time, this would make imports more expensive, driving up local price levels and consumer inflation.

These moves had some market watchers predicting that the RBNZ might also step in the forex market to devalue their currency as well in order to counteract the PBOC’s moves. As for the US dollar, traders are still trading the currency cautiously ahead of more top-tier data from the US economy but risk aversion could benefit the safe-haven.

By Kate Curtis from Trader's Way