Since the post RBNZ Rate Decision rally, we have been trading between 0.805 to 0.8100 without much fanfare last Friday. Early Asian trade this week resulted in more of the same, with prices trading mostly within a tight 20 pip range from 0.807 – 0.809. The fact that this consolidation zone came in straight after a continuous 200 pip rally is the first sign that bullish momentum is slowing down. This is not surprising, as the rally is the result of a surprisingly hawkish RBNZ forward guidance which hinted at a rate hike in early 2014. Market was expecting a maintenance of dovish stance, if not an even more dovish tone, and as such there was a huge knee jerk bullish reaction arising from the disappointment. The question now is whether market is fully on board with a hawkish RBNZ scenario from here out, or perhaps still maintaining the previously held broad dovish outlook. If it is the latter, it is likely that the current rally will simply be a one-time revaluation, and unlikely to result in a long-term bullish push.
However, looking at technicals, price actions does not suggest that this is a one-time revaluation. Usually in such a case, the pullback will be swift and quick, instead of holding on for so long. Furthermore, the main thrust of the bullish reaction came in way after the initial bullish jerk, which failed to push back into the rising channel and break the Kumo. It was almost 12 hours later when prices managed to break the overhead Kumo and the 0.800 – 0.801 resistance/previous swing high. Hence this suggest that the rally is a move that occurred after traders have had the opportunity to sit down, think and recalibrate their opinions before deciding to buy or sell. In this case here traders ended up with a “buy” decision – hence suggesting that market may be expecting a longer term higher NZD/USD move.
From a pure technical perspective, the fact that price did not push towards Channel bottom immediately after tagging Channel Top following a 200 pip move suggest that overall bullish pressure is high. Currently Kumo has caught up with price action, and may provide further support on top of Channel Bottom. Stochastic readings are currently pointing higher, and may be reaching Overbought soon. However, as price is nearing Channel Top once again, all this suggest is the possibility of price rebounding from Channel Top, and does not suggest that price will break Channel Bottom nor start a new bearish retracement scenario.
Long-term Chart shows the breakout of the multi-year channel that has been providing support for the multi-year uptrend. The breakout of the Channel suggest that the long-term uptrend remains intact, hence opening up a long-term move back towards 2011 highs and potentially even higher. This uptrend can be further confirmed should the 0.81 resistance is broken, giving more confidence for closet bulls/fence sitters to join in the buying. Furthermore, given that RBNZ will only sell NZD when trend is in their favor, such a strong bullish momentum in both long and short term prohibits any large central bank intervention, giving bulls 1 less barrier to break through.