NZD/USD Hits Supply Level,Potential Double Top Formation Signals

23 set

As forecasted in our recent analysis, the NZD/USD pair has reached the key supply level around 0.6230. At this level, a potential double top formation is emerging, which, in confluence with the supply area, suggests that a retracement may be on the horizon. Adding further weight to the potential for a pullback, the latest Commitment of Traders (COT) report shows that retail traders are heavily long on the NZD/USD, which often serves as a contrarian indicator when combined with technical signals like the double top pattern.

Today's focus for investors will be on the preliminary US Purchasing Managers Index (PMI) data for September, which could provide more clues for the next movement in the NZD/USD pair. The Manufacturing PMI is expected to tick up slightly to 48.6 in September from 47.9 in August, signaling a continued contraction in the sector but at a slower pace. Meanwhile, the Services PMI is projected to slip marginally to 55.3 in September from 55.7 in August, indicating a still-expanding services sector, though at a slower rate.

Given the current technical setup at the supply zone and the economic backdrop, we are looking for a short setup on NZD/USD, anticipating further downside pressure. The likelihood of a stronger USD could rise, particularly if today's PMI data supports the case for US economic resilience, contrasting with weakness in other major economies like Germany, where the Flash Manufacturing PMI has disappointed markets.

As the EUR/USD continues to fall following poor German data, further strengthening of the USD could weigh on the NZD/USD pair, reinforcing the bearish outlook. The combination of retail traders' long positions, a possible double top formation at the supply zone, and positive momentum in the USD positions the pair for a potential retracement, offering a favorable opportunity for short-term bearish setups.

Traders should watch today's PMI releases closely, as any stronger-than-expected results from the US could amplify USD strength and accelerate the anticipated pullback in the NZD/USD pair.

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