NZD/USD Trading at Key Support; FOMC and RBNZ Ahead

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NZD/USD Trading at Key Support; FOMC and RBNZ Ahead

After a few choppy months that resulted in a sideways market in December and part of January, NZD/USD made another bearish run. The Daily chart below shows the market holding below 0.7870 and finally falling below 0.7608 last week.

NZD/USD Daily Chart 1/27
nzdusd daily chart 1/27
(click to enlarge)

The daily chart shows a persistent downtrend that is picking up pace again with NZD/USD now hovering just above 0.74. The RSI is entering the oversold area, but we know that a persistent downtrend can see oversold conditions for a period of time. How much further will NZD/USD go?

Well, it wouldn’t have to go much lower before hitting a key support pivot from 2013, at 0.7370.

NZD/USD Weekly Chart 1/27
nzdusd weekly chart
(click to enlarge)

The weekly chart shows that price action has been essentially sideways about 3 1/2 years, starting in 2011, after making a high at 0.8842. Now, it has come full circle and back to the support area of this large consolidation range.

In the weekly chart, we saw the RSI in oversold condition at the turn of the year. It has turned up, but is now turning down again and entering the oversold area. If price does start to stall around 0.7370, it might create a bullish divergence with the RSI.

FOMC and RBNZ:

The key fundamental factors for NZD/USD this week will be the FOMC then the RBNZ meeting tomorrow (1/28-1/29).

The FOMC meeting is key because traders are starting to doubt whether it will stick to its plan to raise rates by mid-2015. Some downturn in data and the moves made by other central banks recently pressure the FOMC to be more dovish as well. This might finally stop the USD’s dominance at least in the short-term. If the FOMC’s language does project caution and a possible delay in the rate hike, we should expect support here around 0.7370 for NZD/USD with upside towards the 0.76 level, or even higher such as 0.80.

Otherwise, if the FOMC remains steadfast, A break below 0.7370 is possible, and it would expose the 0.70 handle, though there might also be support at the 2011-low of 0.71.

Then, we have the RBNZ meeting at the beginning of the 1/29 session Now it would be a surprise if they cut raise, and that should drag the NZD/USD down to at least test the 0.7370 low. If there is a rally before the RBNZ, a rate cut would likely prevent this rally from going above 0.76.

If the RBNZ stays put like it is expected to, then the NZD/USD’s moves will likely be USD-guided, in which case dovish FOMC should allow the pair to rebound, while a neutral-steadfast FOMC should drag the NZD/USD test the 0.7370 low.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.