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NZD/USD: what refuses to go down, must…

…Go up?

The UK was not the only place where the latest inflation data missed the mark today. Overnight saw New Zealand’s quarterly CPI print zero, which not only was below the estimates of a small 0.2% rise but also represented a sizeable drop from the previous 1.0% reading. But unlike the GBP/USD, the NZD/USD was quick to recover its poise after a sizeable drop. Such has been the strength of the bounce that the kiwi has even turned higher on the day. With the kiwi able to dismiss weakness in data this easily, it can only mean one thing: the market most likely wants to go higher. So, given what’s happened, I wouldn’t be surprised now if the NZD/USD were to follow the footsteps of the AUD/USD and break out from its recent range to the upside in the coming days or weeks.

Indeed, given the fact that the resistance range between 0.7370-0.7485 has been tested several times already, I think there is plenty of liquidity now resting above it: buy stops from the existing sellers and also from breakout buyers, who are currently on the side-lines. With the main NZ news (CPI) being out of the way now, it doesn’t make sense for the NZD/USD to make a new weekly low now, if the trend is still bullish. Thus, if we do see a new low below this week’s current low at 0.7265, this would invalidate the bullish view, at least in the short-term anyway. In this potential scenario, a drop to the next support towards 0.7050 would then not come as surprise to me. But as mentioned, I think that the most likely outcome would be for the NZD/USD to stage a bullish breakout above the 0.7370-0.7485 range.

Source: eSignal and FOREX.com.

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