NZD/USD: Potential Short In Play
The past week has been relatively positive for the venerable kiwi dollar as the pair rallied following the recent US Jobs report and subsequent Fed jawboning. However, despite the strongly positive rally, the technical indicators are suggesting that there could be some trouble ahead for the currency pair.
Taking a look at the pair’s technical indicators demonstrates the strength of the recent rally with price action soaring towards the 70 cent handle. In addition, price remains strongly above the 100 day moving average which is also a bullish signal. However, there might be some bearish pressure building as pergence becomes evident within the RSI Oscillator.
In fact, a quick review of RSI on the 4-hour time frame shows the oscillator trending lower out of overbought territory. This stands in stark contrast to price action which appears to be readying for another go at a key resistance point which is just above the current level. The stochastic oscillator also mirrors the currently overbought status of RSI. Subsequently, some bearish pergence is clearly evident upon the charts.
Taking into account all of these factors, the likely play in the days ahead will be a continuation of the bullish trend until the currency pair reaches a key resistance zone at 0.7000, which also represents the bottom of the May’s channel. At this point, the oscillators will be strongly overbought and a rejection is likely which would see price heading back towards the 67 cent handle.
However, there are some fundamental risk events looming over the next 24 hours as the New Zealand central bank meets to consider the official cash rate. The overwhelming view is that the RBNZ will leave rates on hold at 2.25%, however, be aware that Australia recently cut their rates and there may be some pressure on the RBNZ to follow suit and depreciate their currency. Subsequently, keep a close watch on any volatility around that news release.
NZD/USD 4-Hour Chart