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James Hyerczyk

The New Zealand Dollar finished lower on Friday, but the low volume suggests traders are still absorbing the volatility created earlier in the week by better-than-expected jobs data and the Reserve Bank’s surprise 50-basis point rate cut in its official cash rate. Traders were expecting a 25-basis point cut, but policymakers decided to act aggressively because of the slowing economy and escalating global trade tensions.

On Friday, the NZD/USD settled at .6466, down 0.0013 or -0.21%.


Daily Technical Analysis

The main trend is down according to the daily swing chart. The main trend was reaffirmed on August 7 when sellers took out a pair of main bottoms at .6487 and .6481. The surprise rate cut drove the NZD/USD into .6378 with the rally stopping just slightly above the January 20, 2016 main.

After hitting .6378, the Forex pair rebounded as high as .6499 before closing the week at .6466. Crossing back over the previous bottoms at .6481 and .6487 indicates that the steep break to .6378 was fueled by sell stops rather than fresh shorting. This is important to note because it means that anyone who shorted weakness under the two main bottoms were caught in a bear trap.

We should find out next week if real shorts want to press this market lower, or if the bears caught in the trap are willing to pay up to get out of losing positions.

The minor trend is also down. A trade through .6588 will change the minor trend to up. This will also shift momentum to the upside. This could get a little tricky for traders playing for a breakout to the upside because of a short-term retracement zone.

The minor range is .6588 to .6378. Its 50% level or pivot is .6483. This level happens to fall in the center of the two former bottoms at .6481 and .6487.

The short-term range is .6791 to .6378. Its retracement zone at .6585 to .6633 is the next potential upside target. Since the main trend is up, sellers are likely to come in on a test of this area.


Daily Technical Forecast

Based on Friday’s price action and the close at .6466, the direction of the NZD/USD on Monday is likely to be determined by trader reaction to the potential resistance cluster at .6481 to .6487.

Bearish Scenario

A sustained move under .6481 will indicate the presence of sellers. This move will be driven by real short-sellers not weak sell stops. It will also put the NZD/USD on the weak side of the pivot at .6483.

If this move is able to generate enough downside momentum then look for a possible retest of last week’s low at .6378. This is followed closely by the January 20, 2016 main bottom at .6346. This is a potential trigger point for an acceleration to the downside with the August 24, 2015 main bottom at .6207 the next likely downside target.

 Bullish Scenario

A sustained move over .6487 will signal the presence of counter-trend buyers. If this move is able to create enough upside momentum then look for the rally to possibly extend into the short-term 50% level at .6585 and the minor top at .6588. The rally could even extend into the short-term Fibonacci level at .6633. Since the main trend is down, we’re going to be looking for sellers on this move.

What could cause the breakout over .6487? If weak short-sellers are trapped under .6481 then the professionals will press the market higher until the traders caught in the bear trap finally blow out of their positions. In other words, a good, old-fashioned short squeeze.


Watch the price action and read the order flow at .6481 to .6487 on Monday. This will tell us if a short-covering rally is coming, or if this market is going to continue to trend lower.

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