NZD/USD Technicals – Retesting Channel Top after breakout

Kiwi dollar has seen strong rallies since the turn of April due to a more hawkish RBNZ and slightly better economic data, lifting the price higher than Feb’s swing high – levels before the doom and gloom drought concerns pulled prices lower.

Daily Chart

Price has broken above the rising channel, hinting of a bullish breakout. However, despite the breaking above Channel Top, questions remain whether this breakout will be able to gain traction higher. Part of the concern is that prices have seen strong acceleration since trading above 0.845 without any sort of bearish reply. This makes current rally look overextended. Also, Stochastic readings would have us believe that the move beyond 0.845 was already extended to begin with, as readings were still within the Overbought region, and was looking to head lower until price decided to trade higher and resulted in Stoch readings forming an interim trough within the Overbought region instead.

Current price movement back towards the Channel Top is the first significant pullback of current uptrend in April. Bulls will need to pass the test with flying colors for further movement higher. Failure to do so will easily result in price heading lower back towards the bottom channel, though price may find some support along 0.845 or along any of the peaks in Jan. Stochastic readings is showing a Stoch/Signal cross which may help push price right back into the Channel. However, the possibility of readings forming yet another trough above 80.0 is still in the cards. Hence users of Stochastic indicator may wish to wait for further confirmation to prevent getting caught if they enter too early.

Hourly Chart

Hourly Chart is slightly bearish with price breaking below Channel bottom and entering the Kumo. Stochastic readings has botched a bull cycle with readings heading lower after barely getting out of the Oversold region. However, as current readings remain above the previous trough, there could still be a chance that this is a “fake out”. This scenario is not far out, as trading within the Kumo is considered “uncertain” rather than outright bearish.

Fundamentally, the strong Kiwi dollar will continue to hurt exports which has already been impaired by the drought. On the other hand, RBNZ cannot afford to cut rates aggressively to bring down NZD/USD as that would result in even higher housing prices which is already threatening to spiral out of control. As such, it is hard to imagine Kiwi dollar pushing even higher beyond record highs of 89.0 but current bullish impetus may still be able to run some more especially with Risk Appetite looking healthy in the US.

More Links:
USD/JPY Technicals – Missing 100 by a hair
AUD/USD – Consolidates Around 1.0550
S&P 500 Technicals – Onward to new highs

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