NZD/USD Forex Technical Analysis – Prolonged Short-Squeeze Could Drive Kiwi into .6451 Over Near-Term

Optimism over Brexit may be behind the New Zealand Dollar’s early strength on Monday, however, the move is likely being fueled by a short-squeeze that began last week following the release of a report showing a slight improvement in quarterly consumer inflation data.

Earlier on Monday, a report showed Credit Card Spending growth slowed to 4.8% in September from 6% in August. Traders were looking for a 5.1% rise.

A weakening U.S. economy and rising chances of a Fed rate cut at the end of the month could also be forcing investors to trim short-positions. Traders may also be reacting to upbeat comments from the U.S. and China about current trade negotiations.

At 04:05 GMT, the NZD/USD is trading .6402, up 0.0015 or +0.24%.

This short-covering rally may not last much longer with investors pricing in a 25-basis point rate cut by the Reserve Bank of New Zealand (RBNZ) in November.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The main trend changed to up last week when buyers took out the .6354 swing top.  The next upside target is the main top at .6451. The main trend will change to down on a move through .6241.

The short-term range is .6451 to .6204. Its retracement zone at .6356 to .6327 is support. Holding above this zone will help sustain the upside bias.

The main range is .6791 to .6204. If the upside momentum continues and .6451 is taken out then the rally could extend into the retracement zone at .6498 to .6567.

Daily Swing Chart Technical Forecast

Based on the early price action and the current price at .6402, the direction of the NZD/USD the rest of the session on Monday is likely to be determined by trader reaction to Friday’s close at .6386.

Bullish Scenario

A sustained move over .6386 will indicate the presence of buyers. If this move creates enough upside momentum then look for buyers to make a run at the .6451 main top over the near-term.

Bearish Scenario

A sustained move under .6386 will signal the presence of sellers. The first downside target is the short-term Fibonacci level at .6356. If this level fails then look for the selling to possibly extend into the short-term 50% level at .6327.

Side Notes

The NZD/USD is showing strength despite calls for a RBNZ rate cut in November. This suggests that something other than the usual fundamentals is driving the price action. That’s why I think the upside price action is being driven by an old-fashioned short-squeeze. Predicting the end of a short-squeeze is difficult because selling into it just feeds the upside momentum.