NZD/USD looks set for a deeper pullback
Fawad Razaqzada September 28, 2016 8:10 AM
The New Zealand dollar’s recent advance has come to a halt recently after the Reserve Bank of New Zealand suggested that interest rates may need to be cut further from their current record low of 2.0%. The NZD’s retreat has been particularly noticeable against the Australian dollar as the AUD/NZD pair has surged back above 1.0500 after dipping to as low as 1.0240. It looks like the US dollar is also now getting the upper hand on the New Zealand dollar, even though the former has weakened against many other currencies recently, including the Aussie.
The New Zealand dollar’s recent advance has come to a halt recently after the Reserve Bank of New Zealand suggested that interest rates may need to be cut further from their current record low of 2.0%. The NZD’s retreat has been particularly noticeable against the Australian dollar as the AUD/NZD pair has surged back above 1.0500 after dipping to as low as 1.0240. It looks like the US dollar is also now getting the upper hand on the New Zealand dollar, even though the former has weakened against many other currencies recently, including the Aussie. But there are a couple of things that could impact the USD today: US data in the form of durable goods orders and the Federal Reserve Chairwoman Janet Yellen’s testimony. Unless the data is significantly weak or Yellen says something dovish, expected the NZD/USD to depreciate further.
Indeed, the technical outlook on the NZD/USD is beginning to look more and more bearish as key supports give way. As can be seen from the 4-hour chart, below, a bullish trend line has also broken down and the underside of it has since turned into resistance around the 0.7325 resistance level. Meanwhile a bearish channel has now been established after the kiwi put in a couple of lower highs and lower lows. So the path of least resistance on this time frame appears to be to the downside.
On the weekly chart, the NZD/USD has put in a few inverted hammer candlestick patterns. These candlestick formations suggest that the bullish thrust is fading fast, which is not a big surprise given the magnitude of the upsurge from around 0.6200 in August of last year to a high so of 0.7485 this year. The bullish struggle is confirmed further by the momentum indicator Relative Strength Index (RSI) being in a state of negative divergence (lower low) with price (higher high).
Consequently, the technical indications imply that the kiwi, just like the flightless bird, may not be able to fly but take a parachute jump.
Some of the key potential support levels, or bearish targets, to watch include the area between 0.7200 and 0.7225 which had been support in the past. Below here, the Fibonacci retracements could be additional targets to watch; in particular the 61.8% retracement level around 0.6980/5, because below that lies another key prior low in close proximity at 0.6955 and above it the psychological level of 0.7000 which is also a key support on the weekly time frame.
Our short-term technical bearish bias on this pair would become invalid upon a potential break above the resistance trend of the bearish channel. In that case, actually, the bearish channel would then turn into a bullish flag breakout scenario, which is anything but bearish. So, the key level to watch on the upside is around 0.7325 as a break above it would also re-establish the broken bullish trend line. For now though, the bears appear to be in the driving seat.
Source: eSignal and FOREX.com.
Source: eSignal and FOREX.com.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.