NZD/USD Forex Technical Analysis – Building Support Base or Waiting for Further Weakness?

The New Zealand Dollar finished lower last week as investors continued to absorb the surprise 50-basis point rate cut by the Reserve Bank of New Zealand on August 7. The fundamentals were basically unchanged last week with most traders concerned about a potential global recession.

A plunge in global bond yields also caught the eye of Kiwi traders, however, the size of the rate cut dampened the effect of the drop in global yields on the currency. This week, investors will have a chance to react to a retail sales report on August 23.

Last week, the NZD/USD settled at .6425, down 0.0041 or -0.63%.

Weekly Technical Analysis

The main trend is down according to the weekly swing chart. A trade through .6378 will signal a resumption of the downtrend. The main trend will change to up on a move through .6791.

Weekly Technical Forecast

Based on last week’s price action and the close at .6425, the direction of the NZD/USD this week is likely to be determined by trader reaction to the downtrending Gann angle at .6391. This angle, moving down at a rate of .004 per week since the week-ending July 19, has been guiding the market lower for four weeks.

Bearish Scenario

A sustained move under .6391 will indicate the presence of sellers. This is followed by the low at .6378. If this price is taken out, the selling is likely to extend into the January 20, 2016 main bottom at .6346. This is a potential trigger point for an acceleration into the August 24, 2015 main bottom at .6207.

Bullish Scenario

Crossing to the strong side of the angle at .7391 won’t indicate the presence of buyers per se, but it may be an indication that the selling pressure has slowed. If this move can create enough upside momentum then look for a rally to possibly extend into the downtrending Gann angle at .6499. This is a potential trigger point for an acceleration into the next downtrending Gann angle at .6591.

Overview

Barring any surprises from the U.S. and China, the NZD/USD is likely to continue to trade sideways. Any rallies are likely to be fueled by short-covering. Look for volatility following the release of the Retail Sales Report on Thursday, and Fed Chair Jerome Powell’s speech on Friday. Traders are looking for Powell to say the Fed will do what it takes to prevent a global recession from spreading to the United States.