NZDUSD has been on a selloff but it looks like a reversal may be in order. Price is forming an inverse head and shoulders pattern on its 4-hour time frame, with an upside break of the neckline at the .6600 handle likely to send the pair up by 200 pips or the same height as the formation.

Technical indicators, however, are suggesting that the downtrend could still carry on. The 100 SMA is far below the 200 SMA and is showing no signs of making an upward crossover, which means that the path of least resistance is to the downside.

Meanwhile, stochastic and RSI are in the oversold regions so sellers might take control. In that case, NZDUSD could resume its drop to the .6400 major psychological support or much lower.

Event risks for this setup include the New Zealand Global Dairy Trade auction midweek, which might yield another decline in dairy prices. In addition, a bunch of top-tier reports are lined up in Australia and these might also influence Kiwi price action.

As for the US dollar, the non-farm payrolls release is due on Friday and another upbeat jobs reading could seal the deal for a Fed rate hike in their December meeting. For the month of November, a 201K increase in hiring is expected, slower than the previous 271K gain.

Editor’s Note: Equity investors/traders can use the iShares MSCI New Zealand Capped ETF (ENZL, quote) ETF to take positions in the euro without a FOREX account.  The ETF looks to track the price of the New Zealand dollar (NZD/USD), minus ETF fee. The fund seeks to reflect the price of the New Zealand Dollar with the shares representing a cost-effective investment relative to investing in the FOREX market.

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