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James Hyerczyk

Volatility hit the New Zealand Dollar on Friday with the currency first grinding to a multi-month high before turning lower for the session and wiping out the week’s gains. The whip-saw price action could have been fueled by end-of-the-month profit-taking or profit-taking ahead of next week’s New Zealand labor market reports.

On Friday, the NZD/USD settled at .6628, down 0.0073 or -1.09%.

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The firming of U.S. Treasury yields could have influenced the price action. Recently, the Kiwi has been supported by the widening in real bond yield differentials as U.S. rates tanked in July. On Friday, U.S. Treasury yields moved lower with short-maturity rates reaching record lows before firming later in the session.

Economic news could have also triggered the volatile response. On Friday, the U.S. Commerce Department said consumer spending increased for a second straight month in June, setting up consumption for a rebound in the third quarter.

Countering this news, however, was Congress’ inability to pass a coronavirus stimulus plan in a timely matter.

If so many off-setting news events, we have to conclude that good old-fashioned profit-taking was behind the reversal in prices.


Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed early Friday as prices edged toward the December 31, 2019 main top at .6756.

A trade through .6716 will signal a resumption of the uptrend, while a trade through .6615 will change the main trend to down.

The Kiwi also formed a potentially bearish closing price reversal top. A confirmation of this chart pattern on money could shift momentum to the downside and change the main trend to down. Trader reaction to .6623, .6620 and .6615 will set the tone. This is a major support cluster in my opinion that has to hold to continue the uptrend.

The minor range is .6615 to .6716. Its pivot at .6666 is resistance.

The short-term range is .6503 to .6716. Its retracement zone at .6609 to .6584 is potential support. This is followed by the main support zone at .6548 to .6509.


Short-Term Outlook

The first key level to watch on Monday is the pivot at .6666. A sustained move under this level will indicate the presence of sellers and could generate the downside momentum needed to trigger another round of technical selling.

We’re close enough to .6615 to change the trend on Monday. So this would be the second level to watch. The bullishness starts to deteriorate if .6584 fails as support.

For a look at all of today’s economic events, check out our economic calendar.

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