Risk currency Kiwi Dollar sunk heavily after Fed Chairman suggested that rate hikes may happen “around 6 months” after the end of QE program, strengthening USD and dampening risk appetite across the board. Prices hit a low of 0.853 within an hour after the comments were made, but we were back above 0.8545 key support level shortly after.
What is more worrying is the fact that prices did a double dip below 0.8545, and managed to stay below 0.8545 since the 2nd attempt. Why this is crucial is because we actually had NZ Q4 GDP numbers released just when prices was testing 0.8545 a 2nd time. The numbers actually came in as expected for both Y/Y and Q/Q measures, and the fact that market reacted bearishly to this is a clear sign that inherent sentiment in NZD/USD is bearish now. From the technical front, we also have confirmation that momentum is bearish – the recovery after the 1st foray below 0.8545 post FOMC announcement failed to overcome the rising trendline that represented the rally seen since 13th March, and the uptrend is at risk of being invalidated.
It’s not all doom and gloom for now though, prices remained above 0.852 which is the last vestige for the aforementioned uptrend, and Stochastic readings are deeply Oversold, favoring a rebound towards 0.8545 once again and hopefully apply enough bullish pressure to allow prices to climb back above the aforementioned support turned resistance level and reignite the bullish momentum once more.
Daily Chart echoes the same concern. Bullish pressure from the breakout has been mostly negated but the uptrend is still intact. Hence it is still possible for NZD/USD to climb higher as long as prices stay above the rising trendline. Even if prices do breach below the rising trendline, prices may still yet find support around 0.85 round figure and provide a chance for bulls to regroup and mount an attack back above 0.8545 to save the breakout scenario.
The fundamentals for a continued rally in NZD/USD is weak though. The main reason why NZD is stronger is due to high interest rates expected within the next 2 years, and while USD was also expected to climb higher in 2014, the pace of which becomes even greater now with Fed’s interest rates expected to start climbing up in 2015. This doesn’t necessary mean that NZD/USD will definitely head lower, but certainly upsides will be impeded and traders wishing to play the NZD strength narrative will definitely fare better trading other currencies that does not have higher rate expectations (e.g. USD, GBP and possibly even AUD if RBA starts to turn hawkish).
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