NZDUSD might be ready for another short-term selloff, as the pair is testing the rising wedge resistance on its 4-hour time frame. 

At the same time, stochastic is indicating overbought conditions, which means that sellers might take control of price action soon.

If that happens, NZDUSD could head back to the wedge support around the .7600 to .7650 area. Increased selling momentum might even lead to a downside break and an additional 500 pips in losses, which is roughly the same height as the chart pattern.

This could depend on the major market catalysts lined up from both the US and New Zealand today. Bear in mind that the FOMC will make its rate statement during the upcoming US session while the RBNZ will announce its rate decision in the next Asian trading session.

Data from the US economy has been mostly disappointing lately but the Fed is expected to reassure market watchers that the recovery is still on track. If Yellen confirms that they are still considering tightening monetary policy with an interest rate hike this year, the dollar could regain ground and drag NZDUSD down. On the other hand, a downbeat assessment and outlook could mean more losses for the dollar.

Meanwhile, the RBNZ might shift to a more dovish stance, especially since the central bank’s Assistant Governor already hinted that they are not looking to hike interest rates anytime soon. He even added that they might cut rates if the inflation outlook remains subdued.

With that, the path of least resistance is to the downside for now, as the .7700 major psychological level is expected to hold as resistance for NZDUSD. Nonetheless, any surprise announcements in the rate decisions might still spark an upside break and a potential 500-pip rally for the pair.

By Kate Curtis from Trader’s Way