After pushing deep into the multi-year support Channel last week, price managed to stay within the Channel, instead of collapsing ala 2 weeks ago. With Stochastic readings looking bullish, last week’s close places this week price in a very strong position for a push towards Channel Top and potentially back towards 0.80+ regions.
That is what technicals would have you believe, for we did not see any bullish endeavors this morning, with price actually gaping lower to around 0.79 during early Asian trade. It seems that last week’s bullish momentum failed to rally the troops this week, and traders are more interested to fade the rally instead. There are perhaps good reasons why NZD/USD is trading lower. There seemed to be a strong risk aversion sentiment which is linked to the Japanese Election results over the weekend. USD was seen strengthening against all majors except for JPY, which pulled NZD/USD lower. The question we need to ask now is whether this dip in NZD/USD is a one-off affair, or a stronger correction that represent the shift in NZD sentiment.
With RBNZ Rate Decision coming this week, perhaps traders are also hesitant to buy NZD further fearing that Gov Wheeler will sprout more of his dovish talks once more. Furthermore, Overnight Index Swaps are currently pricing in a 68% probability that neighboring RBA will cut rate in August, a jump from previous week’s 50+ levels. Even though the same OIS are pricing in a 0% chance that RBNZ will be slashing rate this time round, it will not be surprising to know that some traders will be afraid to go big on any NZD/USD longs and tempt fate.
Nonetheless, short-term chart is still moderately bullish with prices bouncing higher from the ascending channel bottom which happened to be the confluence with the 0.79 round figure this morning. Currently, though price is stlll trading below 0.795, the sequence of higher highs and higher lows isn’t exactly broken, which put price in a good position to test for Rising Channel Top. Stochastic readings are currently pushing higher, suggesting that the decline from Friday’s high is now over. However, it should be noted that readings are quite close to the Overbought region, hence price would most likely be deep within Overbought territory before Channel Top is tagged. Furthermore, in lieu of the fact that Stoch readings did not really managed to hit Oversold, current bullish cycle did not have a firm footing, and could easily turn back even from where we are now for a move back towards 20.0 and below. Hence it is imperative that soft resistance around 0.795 should be broken before strong bullish affirmations can be sought.
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