Price has been trading higher continuously since Monday following the release of CPI inflation data which showed that the NZ Housing Market bubble is far from slowing down. This impedes RBNZ’s ability to freely cut rates in the near term, even though Governor Wheeler would very much love to do so, after public proclaiming more than once that RBNZ will do it as soon as there is scope for them. NZD/USD also received help from the US side, where USD has been weakening significantly due to Ben Bernanke’s dovish talk to the House and Senate midweek. All these allowed price to rally to a high of 0.794, opening the door for a test of 0.796 recent swing high once again.
However, it wasn’t entirely peachy for bulls for the entire week, with significant dips throughout the week, the earliest on Monday itself that drove price to the week’s low of sub 0.774, due to risk aversion in stocks which drove USD stronger. Even Ben Bernanke’s magic on Wednesday did not allow bulls to hold onto the gains, with price breaking back towards 0.786 again due to risk aversion flows before Bernanke saved the day once more with the same dovish speech to the Senate yesterday.
Strangely though, despite today being an extremely bearish day which saw Nikkei 225 trading 1.48% lower thanks to a faux pas by Shinzo Abe’s advisor during early Asian hours, NZD/USD remain robust, with price pushing towards 0.794 once again as we speak even as European stocks are in the red. Furthermore, current rally is not seen in any of the USD crosses, where AUD/USD, EUR/USD and GBP/USD are silent. Hence we are force to conclude that what’s really driving NZD/USD currently is purely technical/speculative and may not be sustainable in the long run.
Nonetheless, short-term speculative actions can be strong, and hence we should not immediately discount the possibility of price testing 0.796 or perhaps even break it even though Stochastic readings are overbought now. There are other technical signs that are in favor of bullish momentum – price has just broken above the Ichimoku Kumo earlier today, while forward kumo has now performed a bullish Kumo Twist. Even stochastic readings are still pointing higher and diverging from the Signal line after rebuffing the initial bearish cycle signal just a few hours, underlining how strong the current bullish momentum is.
Weekly chart gives us a quick understanding on why prices is so bullish. Stochastic from Weekly chart showed that a bullish cycle is currently underway. Price has managed to push into the rising Channel support zone this week, which invalidates the breakout of the rising Channel 4 weeks ago. Looking at long-term chart, the multi-year uptrend is still intact, and hence both bullish sign is highly encouraging, and could grow into a full recovery above the Channel Top especially if risk trends start to favor a weaker USD in 2H 2013.
However, it should be noted that price did manage to trade deep within the Channel last week, but failed to hold onto the gains, closing below Channel Bottom on Friday. With current price not yet closing above last week’s high of 0.796, there is a risk that price may capitulate back towards Channel bottom especially since current rally is fueled only by technical/speculative efforts. Hence do not go in trigger happy thinking that it is a done deal for the bulls. Traders may do well to seek further confirmation that the same thing will not repeat twice this week, or perhaps the cautious ones may even wish to wait for the closing of tonight followed by next week opening’s reaction to see if speculative efforts will be able to continue bringing us closer to Channel Top once again.