Kiwi dollar continued its slide last Friday after failing to clear the 0.853 final resistance hurdle convincingly on Thursday. The combination of Wednesday’s rally, Thursday’s indecision (doji) and Friday’s sell-off formed an Evening Star bearish reversal pattern. Price did manage to dip below 0.848 resistance turned support but ultimately the bearish reversal pattern did not yield fruit, with Monday’s opening levels pushing higher after closing last week just along 0.848 (Price closed at 0.84798).
On hindsight, the Evening Star’s reversal pattern was doomed to fail. Even though the Star itself managed to close below the 0.853 resistance, the subsequent bear candle’s body was dwarfed by the huge bullish candle that came before it. This imply that the forward bullish momentum hasn’t truly been thwarted, which will make breaking 0.848 harder. It is also important to note that NZD/USD bulls managed to hold their own despite a 50 bps miss on US GDP figures. Q1 GDP came in at 2.5% annualized versus 3.0% expected. This underlines the inherent strength of NZD/USD bulls, and should price manage to break 0.853, the Evening Star pattern will be invalidated and will open up 0.868 as viable bullish objective once again.
Before that can happen though, hourly chart should ideally break away from the descending Channel that has been in play post RBNZ highs. Price has managed to breach above 0.850, but sterner test in the form of Channel Top awaits. A break above the channel top will allow bulls to re-target 0.853 once more, while failure to do so may doom current recovery efforts and push price down back to 0.848 once again. Stochastic readings is looking to form a bearish signal with an interim peak right now. If the trough is formed, a temporary bear cycle may be in play which may put 0.848 at risk. As it is, Friday’s sell-off feels incomplete without a retest of the Channel Bottom (price stopped at 0.847 rather than hitting 0.846). As such, a resurgent of bears may result in stronger retest of 0.848, and potentially break it, shifting daily chart’s bullish bias into a bearish one yet again.
Fundamentally, one wonders how long the bullish effect of a hawkish RBNZ can last. Prices have gone up more than 100 pips following Wednesday’s RBNZ statement. This rally halted the bearish momentum from 0.868 sell-off which started back in early April. However, there may be a fundamental shift in NZ’s economics. Recent exports and imports figures suggest that Kiwi producers are much better off with a stronger Kiwi Dollar. Exports figures are continuing to grow healthily but import costs have dropped sharply due to NZD’s strength. Couple this with the drought easing with winter coming, it appears that New Zealand’s economic woes may be over exaggerated during the early months of 2013. If The fundamentals have indeed changed, then suggestion that the sell off from 0.868 has ended will not be an assertion that is too outrageous, and we could even potentially see higher 2013 highs eventually if NZ economy continue to remain strong with US dithering.
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