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NZD/USD Set-up For Steep Drop if .6893 Fails

By:
James Hyerczyk
Published: May 4, 2016, 01:28 UTC

The NZD/USD fell nearly 1.5% on Tuesday, partly due to the interest rate cut in Australia, a weaker stock market and a sharp decline in commodities.

NZD/USD Set-up For Steep Drop if .6893 Fails

The NZD/USD fell nearly 1.5% on Tuesday, partly due to the interest rate cut in Australia, a weaker stock market and a sharp decline in commodities. Essentially, yesterday was a “risk off” day as investors bailed out of higher-yielding assets.

The Reserve Bank of Australia’s decision to cut interest rates 0.25 basis points and the 1.4% drop in the Global Dairy Trade index is likely to put pressure on the Reserve Bank of New Zealand to act next.

Early Wednesday, New Zealand released its employment report. It showed the number of employed individuals rising 1.2% in the first quarter, an even faster clip than the fourth quarter increase of 0.9% and the consensus estimate of 0.7%.

The unemployment rate for the first quarter ticked higher to 5.7%, from 5.4% (revised higher from 5.3%) the prior quarter and above the analyst estimate of 5.5%.

Daily NZD/USD

Technically, the main trend is up according to the daily swing chart, however, momentum has shifted to the downside with the formation of the potentially bearish closing price reversal top at .7053, slightly below the April 19 main top at .7054.

The short-term range is .6806 to .7053. Its retracement zone at .6929 to .6900 is the first downside target.

The main range is .6620 to .7054. Its retracement zone at .6858 to .6812 is the next major downside target.

A trade through .6909 earlier in the session confirmed the closing price reversal top, but unfortunately for the bearish traders and aggressive short-sellers, the market was already trading at the target. This has triggered some intraday short-covering.

Based on the current price at .6921, the direction of the market the rest of the day will be determined by trader reaction to the 50% level at .6929.

A sustained move over .6929 will indicate the presence of buyers. This could create enough upside momentum to challenge the first downtrending angle at .6973. Taking out this angle will be a sign of strength and could trigger a further rally into an angle at .7043.

A sustained move under .6929 will signal the presence of sellers. The first downside targets are an uptrending angle at .6906 and a Fibonacci level at .6900.

Earlier in the session, the market took out .6900, stopping at .6893 and triggering an intraday short-covering rally. If sellers take out this low later in the session with better-than-average volume then look out below because the next major targets don’t come in until .6858 and .6856.

Watch the price action and read the order flow at .6929 and at .6900 the rest of the day. Trader reaction to these levels will tell us if the bulls or the bears are in control.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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