Today we are going to look at the technical side of this pair more as we relate what Governor Graeme said on Wednesday and what the general USD sentiments are. In my opinion, we are nearing a key technical zone for this pair and reversal is in progress. On Friday, and it is the 5th consecutive Friday where the USD tend to reverse weekly losses against major currencies, price broke below the 0.7260 support zone. Coincidentally, this price tag is also a key zone in the monthly chart. Note also, in the run to break below support, price strongly broke off the 20 day moving average which also doubles as the middle band for the Bollinger Band and this confirmed that bearish divergence which had been in the formation since July’s Highs of 0.726 and September’s highs of 0.7440. We can observe that when price action hit the 0.744, there was a double bar reversal from the upper BB and this was coincident with the overbought stochastics in the daily chart indicating that price was already overextended and correction was necessary.
The high NZD is pressing down exports and this is was confirmed from today’s Trade Balance with milk powder exports falling by 8.7%-the lowest since August 2009 and this contributed heavily to the trade balance deficit equal to 37% of GDP. Earlier, during RBNZ statement, Graeme was wary of the marauding kiwi and he noted that because of Foreign exchange differentials, the kiwi was on demand and fueled non-tradable inflation which kept the overall inflation down despite the heating housing prices and growth which was within RBNZ projection. We could easily conclude that Graeme was bearish on the Kiwi while on the other hand the Feds were confident on the economy as they were just waiting for more evidence to cement their decisions and reasons for rate hike come December. These contrasting levels of confident contributed to this shift of demand in the general NZDUSD sentiments with investors reducing their net long positions.
To the charts and this will be today’s plan in the 15 minute chart. Price is attempting to retest support turned resistance at 0.7260 which falls win the 61.8% retracement level with another immediate area of resistance at 0.728 which is at 38.2% Fibonacci retracement levels. Our plan is to wait for retest at these levels with a view to initiate a short only when there is overbought stochastics in this time frame. Practice caution and wait for a confirmation bar to form before initiating a short.
So trade as follows:
Sell Limit: 0.726-0.728
Stop Loss: 0.73-0.732
TP: Trail your profit with a 1:3 Risk Reward ratio.
Otherwise, for you who trade the NZDCHF, NZDCAD pairs, just continue with the shorts. SNB and BOC governors are due to speak later in the day and my analysis points to a short as both pairs are overbought in the weekly charts and a follow up for these shorts will come through. Have a nice trading day.