Even though the trading week has barely started (it’s barely Midday trade for Japan as this article is written), NZD/SGD started to look heavy with advancement above 1.05 being pushed back, showing a small Gravestone Doji which may grow into a Shooting star if the body of the candle is long enough. This is the first sign of weakness since the rally at the start of the year, bringing NZD/SGD from parity to 1.05 – a 5% gain within 1 month, impressive for an exotic pair with both underlying tending not to move strongly in either direction.
The rally can be attributed in part to SGD weakness, but last week’s meteoric rise to 1.05 from 1.03 is largely due to a more hawkish RBNZ with a much more upbeat economic forecast for New Zealand in 2013.
Though it is still early to tell, a Shooting Star bearish reversal pattern will increase the odds of further selling towards 1.03. Should it happen the following week, we’ll have a typical setup of an Evening Star, potentially pushing price further back below parity and 0.99 support. Stochastic peak will also be completed in this scenario, adding credence to a further bearish scenario.
Hourly Chart shows a rising channel, which has been spurred by US Non-Farm payroll figures. NZD/SGD rally has generally been a “risk-on” play, yet a lower than expected NFP print wasn’t met with offers but instead saw traders bidding this particular pair higher. A plausible explanation is the revision of last month’s print from 155K to a stellar 196K, allowing traders to forgive this minor disappointment to maintain a bullish sentiment. Proof of this bullish sentiment can also be evident via DOW which maintained levels above 14,000.
Early Asian trade suggest that bullish sentiment last Friday is spilling over to Asia, with Nikkei and Hang Seng both opening higher. With such bullishness still in play, and hourly chart showing price hitting Channel Bottom, the ultimate bearish scenario described when analyzing the weekly chart could take longer to materialize, or could be stopped short altogether. However, there is still hope for bearish scenario with Yen which is a safe haven currency, recovering from its recent lows against both EUR and USD. Only time will tell if Yen’s recovery is just a technical pullback ala Dead Cat Bounce since price has been overextended for so long, or signal a sobering from the bullish sentiment that can bring NZD/SGD back to its knees.