Kiwi traded lower since early US trading session yesterday, ignoring the better than expected Aussie trade balance and continued lower towards 0.84. Price has since recovered and push back above today’s opening levels despite no strong fundamental news coming through – suggesting that the move could be merely a technical bounce from 0.84.
Even though this move does not have strong fundamental backing, the technicals are strong. For one, price didn’t manage to test the swing high on 27th Mar, underlying the strength of 0.84 as a support. Second, stochastic readings just reached Oversold region when price was testing 0.84, and swing back higher following the confirmation of support. Lastly, rising Kumo will be able to provide support even if price manage to dip below 0.84, hence setting up a nice bullish bias even without any New Zealand fundamental news.
Despite the strong bullish bias which has broken the Kijuu Sen (red line), bulls may still find it hard to break the previous April 2nd swing high without any fundamental support. Stochastic readings will most likely hit Overbought when 0.844 is tested, suggesting that short-term bullish momentum may be overstretched by then.
From the daily chart, the rally is all the more impressive. The doji candlestick generally suggest uncertainty, and is one of the first indication of a reversal. The long wick of the doji (gravestone doji) is even one level more bearish, as it indicates that bulls are unable to sustain their initial momentum, and have been overtaken by bears. Hence today’s rally will bring relief to bulls seeking further breakthrough from the bullish Kumo breakout. A bullish Kumo twist also look possible with Senkou Span A intersecting Senkou Span B currently. However, similar to short-term chart, further rallies may face resistances. In this case it comes in the form of swing highs found back in Jan between 0.844 extending all the way to 0.854. Stochastic reading is also heavily overbought, suggesting that momentum may swing back to the bearish side soon. Nonetheless, bulls may point to the fact that Stochastic readings peaked just when price was entering the Kumo, and yet price manage to push beyond the Kumo to setup current breakout. This underlines the inherent bullishness which may help NZD/USD extends current bullish rally – assuming that inherent bullishness is still there.
In the absence of NZD related news, USD will play a huge role in influencing Kiwi prices – not in the way we’re familiar with though e.g. Risk on/off. Last night’s sell off was sparked by better US Factory Orders and Fed’s Lacker saying that he favors reducing QE purchases in 2013. Both events pushed USD stronger, and drove NZD/USD lower. With US NFP coming on Friday, and BOJ’s announcement tomorrow, we can anticipate higher volatility surrounding USD which may bring NZD/USD wild in either direction. Given these 2 event risks, speculative actions may actually decrease, making bullish push all the more harder on both short and long term charts.
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