NZD/USD drops to major support as kiwi extends correction
James Chen, CMT August 24, 2017 7:11 PM
Amid the highly anticipated start of the Jackson Hole symposium on Thursday and speculation over key speeches to be delivered by Fed Chair Janet Yellen and ECB President Mario Draghi on Friday, the US dollar has remained relatively flat and in a tight trading range this week. One notable exception to this flatness has been the NZD/USD currency pair. Against the New Zealand dollar, the US dollar has extended its strength, pressuring NZD/USD down to a major support area around 0.7200 as of Thursday.
Previously in a sustained rally from a low of 0.6816 in early May up to a two-year high of 0.7556 in late July, NZD/USD began a serious correction early this month after Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler suggested that the central bank is open to possible currency intervention in order to cap the New Zealand dollar’s strength. That suggestion, coupled with the RBNZ’s currently dovish-leaning stance when it comes to interest rates, has placed heavy pressure on kiwi, prompting the NZD/USD pair to break down sharply below its previous uptrend.
In the process of this breakdown, the currency pair has formed a clear head-and-shoulders bearish pattern, which it has just tentatively broken to the downside. As noted, NZD/USD dropped down further on Thursday to hit key support around the 0.7200 support level, which is also near the 50% retracement of the May-July uptrend.
With a dovish RBNZ clearly preferring a weaker NZ dollar and ready to help push it down if necessary, pressure on the kiwi should remain, at least on a short-term basis. As for the US dollar, if Fed Chair Janet Yellen provides any hawkish hints during her Jackson Hole speech on Friday, that could help accelerate the NZD/USD fall. With any clear and sustained breakdown below 0.7200, the next major downside price objective is around the key 0.7050 support level.
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.