NZDUSD has been trending lower on the short-term charts, moving inside a descending channel on the 1-hour time frame. 

Price is currently testing the resistance and a drop towards support might be due.

The top of the channel lines up with the moving averages, which usually hold as dynamic inflection points. In addition, the 100 SMA is below the 200 SMA so the path of least resistance is to the downside, possibly taking price down to the channel bottom at .6650.

Stochastic is already moving out of the overbought region, indicating that selling pressure is returning. RSI is on middle ground, barely offering any strong directional clues for now.

Event risks for this setup include Fed Chairperson Janet Yellen’s speech and the US preliminary GDP reading. Most Fed officials had been hinting at the possibility of a June rate hike but Fed head Yellen could continue to express caution. If she does sound more hawkish than usual, the US dollar could be in for more gains.

Also, the US GDP reading is expected to be upgraded from 0.5% to 0.8% to show a faster pace of growth in Q1 than initially reported. If so, this would underscore policymakers’ views that the economy is strengthening and that tightening could be in order.

As for the Kiwi, downbeat data from New Zealand’s closest economic ally Australia could also weigh on the currency. Earlier in the week, Australia reported a huge slump in private capital expenditure and construction work done, hinting at weaker prospects in the region.

By Kate Curtis from Trader’s Way