NZD/USD Technicals – Bearish Below 0.82 But Don’t Expect Landslide

Hourly Chart

Kiwi dollar rallied in the first hour after market starting trading this week, led by the pullback in USD which affected all USD pairs across the board. However, prices were unable to sustain the push above the 0.820 – 0.822 resistance band which has been in play since last Thursday and has since reverted lower. Currently we are trading below this week’s open and on the verge of trading below 0.819 soft support which may potentially open up a move towards 0.815 support.

There are additional bearish signs as well – this morning’s push is the weakest of the 3 bullish attempts to break the aforementioned resistance band, with prices unable to match the swing highs of Thursday and Friday. Also, the immediate bearish reaction to followed the failure appears to be strongest amongst the same few bullish attempts, suggesting that bearish pressure is greatest and a push beyond 0.815 should not be ruled out. Furthermore, Stochastic readings agree as well, with stochastic curve crossing signal line and favoring a bearish cycle moving forward. However it should be noted that Stoch curve should ideally push below 65.0 – 68.0 in order to show stronger bearish conviction. This reinforce the notion that prices will need to clear the 0.819 level before stronger bearish momentum can follow. Failure to do so does not necessary invalidate current bearish bias, but certainly may allow bulls to hold on for a little while more.

Daily Chart

Daily Chart is similarly bearish, but both Stochastic indicator and line studies suggest that price may only be able to hit a maximum low of 0.81 in the near future – due to the multi-month support level seen in conjunction with Stochastic curve telling us that the biggest chunk of current bearish cycle is already over. This outlook is also inline with fundamentals that favors a stronger NZD in 2014 and 2015 due to RBNZ’s rate hike outlook, with the 1st round of rate hike expected to come by March 2014, and many more to come of 2.25% in total. Even though RBNZ has explicitly mentioned that they prefer to see NZD lower, it is unlikely that they will be able to see it happening due to their own rate hike mandate. Also, it is unlikely that they’ll be too displeased with a higher NZD considering that this would help combat inflation at the same time prevent too much hot money from entering into New Zealand as foreigners seek higher carry. Hence, expect NZD to remain broadly supported against the USD even though the Greenback is expected to pull higher against all other major currencies with QE Tapering now becoming a real thing.

More Links:
Week in FX Americas – Bernanke Tapers on His Final FOMC
Week in FX Asia – Abenomics First Year The End of Deflation
Week in FX Europe – European Union on the S&P Naughty List Downgraded to AA+

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