NZD/USD rallied last week mainly on weak US data. When we had decent CPI and UM sentiment data on Friday, the USD stopped its bleeding. Let’s follow up on the NZD/USD.
The 1H chart shows that after rallying from 0.7421 to 0.7740, NZD/USD stalled on Friday. It then started to form a triangle. This week, we started with a failure to cross 0.7725. This was mainly due to the USD’s resilience as we see EUR/USD and GBP/USD form price tops. We also had poor CPI data coming out of New Zealand, which didn’t help.
NZ CPI q/q (Q1): -0.3%
(click to enlarge; source: forexfactory.com)
Official Government Release: (Statistics New Zealand)
This is the second straight quarter with the CPI falling below 0. On the year, the CPI increased 0.1%, which is the smallest annual reading since Q3 of 1999. While disappointing, the low inflation data did not surprise the market, but should still keep the NZD pressured especially against the USD.
It should be noted that NZD/USD started the week with a bullish attempt coinciding with the soft CPI data. Basically, NZD/USD is dominated by USD flows, so the CPI data is not having much impact. Eventually, the USD started to strengthen across the board and NZD/USD fell from 0.7725 to test the support of a newly formed triangle. (Update: as we get into the US sesion, price is breaking the triangle and testing the 0.7650 handle.
If there is a break below 0.7650 and the market holds under 0.77 on a subsequent pullback, NZD/USD would first have the 0.7550-0.7575 support/resistance area in sight. Below that, there is another support/resistance pivot around 0.7480-0.7485. A break below 0.7480 might revive a prevailing downtrend in the medium-term.
In the daily chart below, we can see that a break below 0.7480 means NZD/USD would have cleared below the moving averages and a rising wedge support, signaling bearish continuation at least towards the 0.7176-0.72 lows on the year.
Previous Post by Author: GBP/USD Forming a Short-term Head and Shoulders Pattern