NZD/USD Forex Technical Analysis – Needs to Hold .6379 Fib Level to Sustain Upside Momentum

The New Zealand Dollar posted an impressive rally on Wednesday after U.S. inflation missed expectations, triggering a rush into risk assets. The Kiwi surged 1.8%, the largest daily gain to date this year.

On Wednesday, the NZD/USD settled at .6403, up 0.0116 or 1.82%.

U.S. inflation data showed that consumer prices did not rise in July due to a sharp drop in the cost of gasoline, with the consumer price index increasing by a slower-than-expected 8.5%, following a 9.1% rise in June.

The softer data sent risk assets sharply higher, as investors turned hopeful that the Federal Reserve would become less aggressive on interest rate hikes.

Meanwhile, the odds of a 75 basis point rate hike dropped as the chances of a 50 basis point Fed rate hike rose.  At the same time, traders are pricing another 50 basis point rate hike by the Reserve Bank of New Zealand (RBNZ) on August 17.

Looking ahead to Thursday, traders are preparing for the release of the Real Estate Institute of New Zealand’s house price report.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The main trend turned up on Wednesday when buyers took out the main top at .6353. It was reaffirmed on a trade through the June 16 main top at .6396. A trade through .6212 will change the main trend to down.

The intermediate range is .6576 to .6061. On Wednesday, the market closed on the bullish side of its retracement zone at .6379 to .6318, making it support.

The major support is the long-term Fibonacci level at .6231.

On the upside, a pair of 50% levels at .6467 and .6547 are potential targets and resistance levels.

Short-Term Outlook

Trader reaction to the intermediate Fibonacci level at .6379 is likely to determine the direction of the NZD/USD early Thursday.

Bullish Scenario

A sustained move over .6379 will indicate the presence of buyers. Taking out Wednesday’s high at .6434 will indicate the buying is getting stronger with .6467 the next target. Sellers could come in on the first test of this level. Overcoming it, however, could trigger an acceleration into the next 50% level at .6548.

Bearish Scenario

A sustained move under .6379 will signal the presence of sellers with a 50% level at .6318 the next target. Since the main trend is up, buyers are likely to come in on a test of this level. If it fails to hold then the long-term Fibonacci level at .6231 will become the next major target. This is the last potential support before the .6212 main bottom.