NZD/USD Technicals – Pushing Channel Bottom before NFP

In a week without any major news releases, NZD/USD managed to trade extremely bearishly, sending price deep within the multi-year support channel, almost testing Channel Bottom. This highlights the strong bearish pressure that NZD/USD has around 0.81 resistance. This week’s decline is an affirmation of the downtrend since April 2013, and potentially invalidates the rally that started 3 weeks ago. The 3 White Soldiers pattern is effectively negated with this week’s Bearish Engulfing Marubozu, which is now below the closing price of the 2nd “soldier”. Price is now looking likely to break the Channel altogether, and even though we have around 12 hours worth of trading left, this possibility should not be ruled out with Non-Farm Payroll coming out later. Should a strong NFP strengthens USD further, NZD/USD may be able to break Channel Bottom this week, possibly resulting in acceleration of price lower on Monday opening. Even in the event of USD weakening post NFP, it is unlikely that price will be able to push all the way and tag 0.81, breaking the Channel Top in the process. Hence we would still be trading within the Channel, which would still impair the 3 White Soldier pattern, and the strong bearish movement may only be deferred by one week before fresh bearish impetus take hold again.

Weekly Chart

Even though Stochastic readings are still pointing higher, it should be noted that previous peaks have not tagged Overbought before heading lower. As such, there may not be a need to hold out and wait until Stoch level has enter the Overbought region and break 80.0 once again for a bearish cycle signal to take place.

Historical Open Position Ratios

Using this contraion indicator, we can see that the great turn around this week happened just when Net Position held at 0.10% in the favor of bulls. With majority retail traders continuing to long NZD/USD, pressure will continue to be on the bearish side (due to its contraion nature). Without breaking into net short regions, we can also interpret that the major decline from the break of 0.84 (when the net long ratio was first spotted) remains in play. And judging by the increasing in long ratios, especially with ratios currently above 20.0% and clearly above the “fakeout” knob seen back in March, the odds are good that it may be a while before we hit Net Short again. This provides yet another support for the case of lower NZD/USD moving forward.

RBNZ Wheeler must be extremely happy right now, as this turnaround in NZD/USD present the opportunity for RBNZ to sell NZD further into the trend, pushing NZD/USD lower further. Continue to keep watch on key support levels moving forward, as every support break represent a potential entry level for RBNZ to sell into, which would translate to stronger and more aggressive bearish follow-through.

More Links:
EUR/USD – Losing Ground as Markets Eye ECB Rate Announcement
AUD/USD – Touching below 0.89 briefly ahead of NFP
Gold Technicals – Breakout below 1,300 seen

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