NZD/USD Technicals – Wheels Coming Off Bull Cart

No major news from New Zealand this week, but this didn’t stop NZD/USD from trading lower today, breaching the 0.834 – 0.835 soft support during early Asian session but managed to stay supported via the rising Channel Bottom that was in play prior to the FOMC rally. The drop this morning can be attributed to the decline in risk appetite which saw Asian stocks opening lower following the guidance of US trading session yesterday. As the decline in risk appetite was driven by fresh QE tapering fears, USD received further boost, resulting in a double whammy for NZD/USD today.

However, this explanation doesn’t fly when we consider that NZD/USD actually traded higher during US session yesterday, when US stocks actually pushed lower and where the source of current bearishness came from. Hence it is strange that NZD/USD only choose to decline now. Furthermore, if we want to look at risk appetite per se, 4 out of 6 NZ major stock indexes are trading higher, with declines seen in the NZX Mid cap and Smallcap indexes.

Perhaps the best explanation would be that prices were driven down due to technical influences after failing to break 0.839 resistance yet again. This bearish momentum was helped by the global risk aversion/USD strength and hence allowing us to break the 0.834. However we did not really see strong bearish follow-through below 0.834 because risk appetite is really not as bearish as we think as evident via NZ stocks. This resulted in the obscure Channel Bottom that hasn’t been in play in the past 3 days to be relevant again.

Hourly Chart

Moving forward, 0.834 remains in focus. Currently price is retesting the level after rebounding from Channel Bottom. Stochastic is suggest that a bullish cycle may be coming, which may allow us to hit Channel Top or at the very least around 0.839 – 0.84 resistance should the bullish cycle take off. However, should 0.834 holds with Stoch curve pushing under 20.0 lower again, the likelihood price breaking Channel bottom increases and we could see prices moving down to the next level of support around 0.824 – 0.825.

Weekly Chart

Weekly Chart display some weakness in the rally which started 3 weeks ago. Prices appeared to have found some resistance around the peaks of late Aug 2011, late Feb 2012 and the ceiling between Sep 2012 – Feb 2013. Stochastic readings suggest that we are already Overbought, and a pullback can be reasonably expected before the next leg of bullish push can be made. How far price may pullback is anybody guess, but bulls can possibly withstand a pullback towards Channel Top without jeopardizing current bullish momentum.

Fundamentally NZD/USD will continue to be torn moving forward by a stronger USD (due to QE taper speculative play) and a stronger NZD (due to potential 2014 rate hikes). Therefore, we could see further directionless movement within 0.81 – 0.845 similar to price action between June – August 2013. Traders wishing to speculate on NZD’s long-term strength may be better off pairing with other weaker currency instead.

More Links:
EUR/USD – Eases back below Support at 1.35
AUD/USD – Attempting to Stay Above Key Level at 0.94
GBP/USD – Moves up from Support at Key 1.60 Level

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