NZD/USD Technical Analysis: descending channel breakout confirmed ahead of Fed

The NZD/USD pair crossed the descending channel hurdle yesterday, signaling an end of the pullback from the recent high of 0.6969 and a resumption of the bullish move.

So far, however, the pair has struggled to capitalize on the bullish breakout. As of writing, it is trading at 0.6858, having clocked a high of 0.6880 yesterday.

The Fed will announce its policy decision on Wednesday, at 1900 GMT. Markets seem positioned for a “dovish hike”, where the Fed hikes rates by 25 basis points, as expected, but lowers its rate hike forecasts. As of now, markets are assigning just a 30 percent probability of a single rate rise in 2019.  

The Fed, however, may remove just one rate hike from September's forecast of three 2019 rate hikes, leaving the markets well behind the curve. As a result, the risks surrounding the US dollar are skewed to the upside, meaning the bull breakout seen in the NZD/USD pair could end up trapping the bulls on the wrong side of the market.

4-hour chart

Trend: Cautiously bullish