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NZD/USD Forex Technical Analysis – Weekly Outlook: Sustained Move Under .6742 Will Signal Return of Sellers

James Hyerczyk

The New Zealand Dollar rallied to its highest level since August 1 before retreating at the end of the week. Helping to underpin the Kiwi was bullish employment data and a tweak to the monetary policy statement by the Reserve Bank of New Zealand. The RBNZ acknowledged an improved outlook for the economy, leading investors to abandon bets it would cut interest rates over the coming months.

RBNZ Governor Adrian Orr said that Kiwi growth is expected to pick up over the course of 2019 thanks to government fiscal stimulus and population increases, suggesting policymakers think a key precondition for avoiding a rate cut has been satisfied.

Governor Orr also said that steep losses for the New Zealand Dollar in 2018 will lend support to the economy by making Kiwi exports more competitive, and that the labor market has reached its “maximum sustainable level.”

Additionally, faster growth this year and next, as well as a continued improvement in the labor market, enabled Governor Orr and the rest of the policymakers to lift their inflation forecasts.

Gains were limited last week by the hawkish U.S. Federal Reserve. The rally we saw was short-covering and position-squaring in reaction to the RBA comments.

Last week, the NZD/USD settled at .6738, up 0.0091 or +1.37%.

Weekly NZD/USD

Weekly Swing Chart Technical Analysis

The main trend is up according to the weekly swing chart. The trend turned up last week when buyers took out the previous main top at .6727. The next targets are a pair of minor tops at .6851 to .6859. The next major main top is .7061. The main trend will change to down on a trade through .6424.

Since late June, the NZD/USD has been trading inside a major retracement zone, bounded by .6864 on the upside and .6398 on the downside. This zone is controlling the longer-term direction of the Forex pair.

The main range is .7061 to .6424. Its retracement zone is .6742 to .6818. Last week’s rally to .6799 stopped inside this zone. The Forex pair closed below this zone at the end of the week.

The new short-term range is .6424 to .6799. Its retracement zone at .6611 to .6567 is the primary downside target. Since the main trend is up, buyers could come in on a test of this zone.

Weekly Swing Chart Technical Forecast

Based on last week’s price action and the close at .6738, the direction of the NZD/USD this week is likely to be determined by trader reaction to the main 50% level at .6742.

A sustained move over .6742 will indicate the presence of buyers. If this move creates enough upside momentum then look for a rally into .6799, followed by .6818. Taking out .6818 could trigger a further rally into the major 50% level at .6864, followed by the minor tops at .6851 to .6859.

The trigger point for a potential acceleration to the upside is .6859.

A sustained move under .6742 will signal the presence of sellers. The daily chart is wide open to the downside with .6611 to .6567 the primary downside target.

The hawkish Fed and the retracement zone at .6742 to .6818 combined to stop the rally last week. If the Fed’s hawkish tone continues to drive the price action then the NZD/USD is going to have a difficult time breaking through the zone. This increases the odds of a pullback into the retracement zone at .6611 to .6567 over the near-term.

This article was originally posted on FX Empire