NZDUSD could be in for a big reversal from its long-term downtrend as price formed an inverse head and shoulders on its daily time frame. A test of the neckline could follow, and a break above this could set off a climb that’s the same height as the formation.

This reversal pattern spans .6250 to around .6450 so the rally could last by around 200 pips until .6650. However, the 100 SMA is still below the 200 SMA to indicate that the path of least resistance is to the downside or that the selloff is more likely to gain traction than to reverse. Then again, price is already above the 100 SMA dynamic inflection point so it could keep holding as support.

RSI is starting to turn higher to show that buyers are regaining the upper hand, even without seeing oversold conditions. Stochastic dipped in the oversold territory and is starting to pull up, so price might follow suit as buyers return.

The Kiwi was under pressure in previous trading sessions as the RBNZ inflation expectations report featured a downgrade on estimates. However, the RBNZ still decided to sit on their hands in the latest policy statement instead of cutting from 1.00% to 0.75% as many expected. Recall that the central bank already cut rates by 0.75% in total so far this year, so it’s understandable that they decided to hold this time.

Still, the Kiwi could take cues from major swings in sentiment on account of trade deal developments. There were some positive updates last week that kept the commodity currency supported, but doubts resurfaced earlier this week and kept a lid on gains.

Up ahead, the dollar could take control of price action on this pair as US CPI and retail sales are due in the latter part of the week. Improvements are eyed in CPI readings, possibly dashing hopes of an imminent Fed rate cut.