NZD/USD collapsed spectacularly on Friday, shedding more than 100 pips following the release of NFP numbers. The bearish move was due to the strengthening of USD following a better than expected NFP print, entrenching believe that Bernanke would be able to go ahead with the QE tapering efforts. However, while US stocks rallied shortly after the dip, USD did not weaken, allowing NZD/USD to remain depressed.
Price was mixed on Monday morning – price gaped lower on open, but failed to trade below the 0.77 round figure. However, the rebound was nothing to behold, and price basically whipsawed along 0.771, until a bullish breakthrough was made above 0.772 during midday Japanese trade. This rally is interesting considering that House Sales data showed no gain in the month of June, a slow down from previous month’s 0.7%. RBNZ’s Governor Wheeler has mentioned on numerous occasions that the Central Bank will not hesitate to lower key interest rates if the housing market bubble eases. Looking at recent trends, the REINZ HPI M/M data has slowed down considerably, from April’s 2.4% high to May’s 0.8%, June’s 0.7% and current 0.0%. This is a strong indication that the housing bubble is easing, and would be a good basis for RBNZ to start pressing the rate cut’s button. Hence it is strange that bulls are able to trade higher despite this news, and suggest that Kiwi dollar may be oversold right now.
From a technical basis, a rally from here is not surprising considering that price has came down a very long way in such a short period of time. Currently we are trading above the 0.771 short-term support, and together with the bullish signal from Stochastic, it is reasonable to interpret that a corrective cycle is underway. Immediate resistance levels will be around 0.775 – 0.777, above which 0.78 – 0.783 may provide further resistance if the aforementioned level is broken.
From a longer-term perspective, we could be seeing a strong bearish correction for NZD/USD, as we managed to close below the rising multi-year Channel support. However, Stochastic readings suggest that current price may be oversold, and should price start to move lower from here, we could potentially find support around 0.75 in the form of 2011 and 2012 swing lows. Perhaps a stronger bearish signal may be formed should price rally from here to test the rising channel, only to be rejected – in line with a Stoch peak forming. This would help to firm up the case for a longer-term bearish outlook.
With RBNZ next upcoming rate announcement coming in on 25th Jul (New Zealand local time), we may be able to see short-term technical bulls pushing higher. Price may tank again post 25th Jul if RBNZ choose to harp on the improving housing market conditions and rehash the possibility of rate cuts. This would be in line with what we’ve discussed earlier – where price may rally to test the Channel, but ultimately fail with a strong bearish rejection which may lead us to multi-year lows and potentially beyond.
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