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NZD/USD: Wheels Coming Off The Bull Cart

NZD/USD: Wheels Coming Off The Bull Cart

No major news from New Zealand this week, but this didn’t stop the NZD/USD from trading lower today, breaching the 0.834 – 0.835 soft support during the early Asian session. The currency managed to stay supported via the rising Channel Bottom that was in play prior to the FOMC rally. The drop this morning can be attributed to the decline in risk appetite which saw Asian stocks opening lower following the guidance of US trading session yesterday. As the decline in risk appetite was driven by fresh QE tapering fears, the USD received a further boost, resulting in a double whammy for the NZD/USD today. However, this explanation doesn’t fly when we consider that the NZD/USD actually trades higher during the US session as it did yesterday, when US stocks actually pushed lower. This appears to be where the source of current bearishness came from. Hence it is strange that the NZD/USD only chose to decline now. Furthermore, if we want to look at risk appetite per se, 4 out of 6 NZ major stock indexes are trading higher, with declines seen in the NZX Mid cap and Smallcap indexes. Perhaps the best explanation would be that prices were driven down due to technical influences after failing to break 0.839 resistance yet again. This bearish momentum was helped by the global risk aversion/USD strength and hence allowed us to break 0.834. However we did not really see strong bearish follow-through below 0.834 because risk appetite is really not as bearish as we think, as evident via NZ stocks. This resulted in the obscure Channel Bottom, which hasn’t been in play over the past 3 days, becoming relevant again.Hourly Chart

NZD/USD Hourly” title=”NZD/USD Hourly” src=”https://d1-invdn-com.akamaized.net/content/pic19902f56a457767b91f0bea58b268631.PNG” height=”325.75172413793″ width=”undefined”>Moving forward, 0.834 remains in focus. Currently price is retesting the level after rebounding from Channel Bottom. Stochastic is suggest that a bullish cycle may be coming, which may allow us to hit Channel Top or at the very least around 0.839 – 0.84 resistance should the bullish cycle take off. However, should 0.834 holds with Stoch curve pushing under 20.0 lower again, the likelihood price breaking Channel bottom increases and we could see prices moving down to the next level of support around 0.824 – 0.825.Weekly Chart

NZD/USD Weekly” title=”NZD/USD Weekly” src=”https://d1-invdn-com.akamaized.net/content/pic79e4dc6fdd6bfc61f0c055ddbe44ac2c.PNG” height=”303.15172413793″ width=”undefined”>The Weekly Chart display some weakness in the rally which started 3 weeks ago. Prices appeared to have found some resistance around the peaks of late Aug 2011, late February 2012 and the ceiling between September 2012 – February 2013. Stochastic readings suggest that we are already Overbought, and a pullback can be reasonably expected before the next bullish push can be made. How far prices may pull back is anybody’s guess, but bulls can possibly withstand a pullback towards the Channel Top without jeopardizing current bullish momentum.Fundamentally, the NZD/USD will continue to be torn moving forward by a stronger USD (due to QE taper speculative play) and a stronger NZD (due to potential 2014 rate hikes). Therefore, we could see further directionless movement within 0.81 – 0.845 similar to price action between June – August 2013. Traders wishing to speculate on NZD’s long-term strength may be better off pairing with another, weaker currency instead.Original post

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