Trade NZD/USD: Testing Key Support Area – May 26, 2014

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Trade NZD/USD: Testing Key Support Area - May 26, 2014

Trade NZD/USD: Testing Key Support Area - May 26, 2014NZD/USD is currently testing a major support level, visible on the 4-hour forex time frame. Stochastic is already moving in the oversold area but has yet to cross higher and indicate a potential return of bullish momentum.

Over the weekend, New Zealand reported a weaker than expected trade balance reading and led the Kiwi to start the week on a weak note. Take note though that other economic reports from the country released earlier in the month showed signs of resilience in hiring and consumer spending.

If the support area holds, trade NZD/USD could make its way back to the middle of the range or the next resistance area near the .8650 minor psychological level. A downside break could be indicative of a longer-term selloff, perhaps until the .8000 major psychological support.

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Analysis Trade NZD/USD

In terms of monetary policy, the RBNZ is still more hawkish compared to the US Federal Reserve. After all, the RBNZ has already hiked interest rates a couple of times in the previous months, increasing the appeal to trade NZD/USD because of the positive carry.

However, risk aversion and the declining dairy prices have taken their toll on the currency. Remember that higher-yielding currencies typically lose ground when traders lose their appetite for risk, hence the latest selloff for the NZD/USD pair. Meanwhile, lower dairy inflation means that companies are able to collect lower revenues for their exports.

Despite that, the New Zealand dollar could gain some bids if risk sentiment improves. There are no major reports lined up from the economy this week though, leaving the chance for consolidation around .8550 pretty high. A rally back to the .8750 area could take place if there is a significant improvement in overall risk sentiment.

To contact the reporter of the story: Marco Roemer at marco@forexminute.com

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.