Strong Momentum Could Drive NZD/USD into .6710 – .6753

The New Zealand Dollar is edging higher early Friday after posting a volatile outside move the previous session. The volatility was fueled after the European Central Bank (ECB) shocked the financial markets with a hawkish turn. The ECB voiced “serious concerns” about the trajectory of inflation and opened the door to a rate hike this year. The news sent global bond yields soaring.

At 05:13 GMT, the NZD/USD is trading .6679, up 0.0014 or +0.22%.

The surprise from the ECB stoked market speculation the Reserve Bank of New Zealand (RBNZ) may have to act more aggressively at its next policy meeting on February 23.

The Kiwi is also getting a lift from an early recovery in U.S. stock index futures following a steep sell-off the previous session. The move is helping to improve risk sentiment.

Look for more volatility at 13:30 GMT when the U.S. releases its January Non-Farm Payrolls report.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart, however, momentum is trending higher. A trade through .6891 will change the main trend to up. A move through .6529 will signal a resumption of the downtrend.

The minor trend is up. This is controlling the momentum. A trade through .6610 will change the minor trend to down.

The first minor range is .6811 to .6529. The NZD/USD is currently trading on the strong side of its 50% level at .6670, making it support.

The second minor range is .6529 to .6682. Its retracement zone at .6605 to .6587 is another support area.

The short-term range is .6891 to .6529. If the upside momentum continues then look for the rally to continue into its retracement zone at .6710 to .6753.

Daily Swing Chart Technical Forecast

The direction of the NZD/USD on Friday is likely to be determined by trader reaction to .6670.

Bullish Scenario

A sustained move over .6670 will indicate the presence of buyers. Taking out the intraday high at .6684 will indicate the buying is getting stronger. This should trigger a rally into the retracement zone at .67100 to .6753.

Since the main trend is down, sellers could come in on the first test of .6710 to .6753. They will be trying to form a secondary lower top. Taking out .6753, however, could trigger an acceleration to the upside.

Bearish Scenario

A sustained move under .6670 will signal the presence of sellers. If this move creates enough downside momentum then look for the selling to possibly extend into .6606 to .6588. Aggressive counter-trend buyers could come in on the first test of this area. If .6588 fails as support then look for an acceleration to the downside with .6529 the next major target.