Where is the NZD/USD Going?

Where is the NZD/USD Going?

Central Banks: This week the forex market was bombarded by central surprises with Mario Draghi bring out the big bazook. (ECB announced QE at the pace of $60 billion euros a month from March to at least Sept. 2016).

Comm Dolls: There was also a sharp decline in commodity currencies (AUD, CAD, NZD). AUD/USD fell to lows not seen since July 2009, USD/CAD rallied to highs not seen since April of 2009. NZD/USD is also falling, breaking into lows not seen since November  2011.

The daily chart shows that NZD/USD has been bearish, but turned choppy since October 2014. It even turned sideways in December and threatened to form a price bottom in January. However, after retreating from a failed attempt to break 0.79, NZD/USD revived its prevailing downtrend and has been sliding sharply, with the 0.74 handle in sight.

NZD/USD Daily Chart 1/23
nzdusd daily chart 1/23
(click to enlarge)

Resistance Against Pullback: The bearish trend is continuing, and if there is a pullback, we should monitor for resistance first at the 0.76 level. There might be more upside risk within the longer-term bearish outlook, but if price pushes above 0.78, the NZD/USD might have entered another consolidation, or bullish correction.

Long-term Outlook: Turning to the monthly chart, we can see that NZD/USD has been rallying since 2000-low near 0.39. The latest bull-run was from the 2009-low of 0.4875 to the 2011 and 2014 highs around 0.8840.

NZD/USD Monthly Chart 1/23
nzdusd monthly chart 1/23
(click to enlarge)

Consolidation/Double Top: Note that since 2011, NZD/USD has been essentially consolidating, OR forming a double top. For the double top, the support is around 0.73-0.7350, which also involves the 38.2% retracement of the 2009-2011 rally. In the short-term we can expect some support here around 0.73.

The next key support for NZD/USD below 0.73 is probably the 0.70 psychological level.

Now, the monthly chart also shows us that the long-term trend is actually bullish. so there’s a possibility that the “double top” is simply a consolidation. So, let’s first anticipate support around the 0.73-0.7350 area before considering the 0.70 handle, and the 0.6860 level (50% retracement).

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