Despite breaking the support zone 2 weeks ago, price did not really swoop lower, with bulls continuing to resist further sell-offs, resulting in last week candle closing with a Spinning Top. This candlestick pattern generally represent uncertainty, and may potentially mean that a counter-trend move is coming soon. However, with the body of last week candle trading below the Support Zone, the candle could be interpreted as a failed recovery attempt, with the Spinning Top acting as the point of inflexion for current decline. This week’s price action helped us to determine which interpretation is correct – Price moved higher, with current price trading within the rising support channel, suggesting that last week’s Spinning Top is a reversal sign. Should we stay within the Support Zone by the end of today’s close, we could potentially see bullish acceleration back towards the top side of the support Channel next week.
Interestingly, Stochastic indicator does not really support a bullish scenario. The Stoch line is currently pointing lower despite just clearing the Oversold region last week. Considering that US NFP numbers is scheduled to be released today, traders should ideally seek out strong confirmation to determine directionality post NFP release. A good way to help determine over sentiment would be to observe the initial reaction of next week market open. Should prices gap higher after closing within the Channel tonight – and able to hold onto the gains (this is key), likelihood of bulls continuing to push towards 0.80 and rising Channel Top would be higher. Conversely, should price gap lower on Monday after price close below the Channel, bias would favor to the downside for an extension of the multi-year trendline break. Any price action in between the 2 scenarios (e.g. price gaping higher despite closing below Channel, or price gaping lower but unable to hold onto losses) would suggest that last Friday’s price action has been impaired by volatility, and hence traders should be wary of what the “signals” are telling and wait for further directional indication.
Fundamentally, RBNZ Gov Wheeler favors a weaker NZD, and has mentioned on numerous occasions that he would cut the policy rate if he can help it. Furthermore, Wheeler has also mentioned that RBNZ will sell NZD to further accelerate bear trends. As such, if the break of Support Channel is truly confirmed, we could actually see quick bearish acceleration back towards low 0.70s with RBNZ aiding technical bears along the way. On the economic front, New Zealand economy in 2013 has been a mixed bag – employment market appears to have stabilized after the shocking increase in employment rate earlier in the year. The raging heatwave that had cost real economic damage (to the tune of 0.7% of GDP growth) appearing to have subsided. However, this should not be the main reason for NZD to be weaker against global counterparts, as the fundamentals are still much stronger compared to Euro-Zone and perhaps even China considering recent credit scares. US economy is another story altogether though, and NZD could still yet weaken against the Greenback with US economy starting to improve (at least to an extend that Bernanke is willing to talk tapering).
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