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NZD / USD Technical Setup: Price Action Approaches Key Support


NZD / USD (Kiwi) Analysis

  • Deteriorating US fundamentals highlight potential reversal in NZD / USD
  • NZD / USD price action approaching key long-term range, consider and discuss various scenarios
  • Scheduled risk events dominated by US data, including final Q1 GDP and PCE data

The NZD / USD pair has been depressed for a while now, but is approaching a fairly key level of support (0.6200). This presents an interesting dilemma of a possible refusal of collapse. Chartists will tell you that the more often a level is tested and respected, the more likely it is to eventually give way. So far, the pair has approached 0.6200 and the 61.8% Fib of the big move in March 2020 without continued downward momentum.

Fundamental factors supporting another refusal of the 0.6200 level include China’s supportive monetary policy amid widespread constraints and slower growth. Nevertheless, the IMF predicted that China will recover faster than the US in 2023, which bodes well for the Kiwi, as China is New Zealand’s largest trading partner. If we look at the US dollar, we have already seen yields fall and market expectations around the Fed’s closing rate seem to have peaked last week, around 4%. In terms of earnings forecasts, slower growth and declining consumer sentiment in the US could lead to a softer dollar as recession fears gain momentum. Nearest resistance appears at 0.6395 if we should see a rejection of lower prices around key support.

However, if USD data moderates, leading to lower market expectations around a possible short-term recession, the existing downward trend may continue. In the event of a collapse of 0.6200, support comes down completely to 0.5915 – which corresponds to the 2004 and 2006 major pivot points.

NZD / USD Daily Chart

Source: TradingView, prepared by Richard Snow

The monthly chart highlights the 2020 big move and subsequent Fibonacci levels. The 61.8% Fib appears next to the long-term pivot around 0.6200, which is a pretty significant zone of support.

NZD / USD Monthly Chart

NZD / USD Technical Setup: Price Action Approaches Key Support

Source: TradingView, prepared by Richard Snow

NZD / USD:Retail retailer data shows 65.55% of traders are net long with the ratio of traders long to short at 1.90 to 1.

We usually take a contradictory view of crowd sentimentand the fact that traders are only long indicates NZD/ USD prices may continue to decline.

The number of traders net-long is 3.63% higher than yesterday and 0.63% lower from last week, while the number of traders net-short is 12.70% lower than yesterday and 14.58% higher than last week.

Positioning is more net long than yesterday, but less net long from last week. The combination of current sentiment and recent changes gives us a further mixed NZD / USD trading outlook.

The RBZN is expected to continue to raise rates rather aggressively, and will continue on July 13ste where 50 bps are currently priced in by the markets. Markets are currently seeing just under 200bps of further tightening in the year which will put the target rate at 4%.

Market Implied Probabilities of NZD Target Rate

NZD / USD Technical Setup: Price Action Approaches Key Support

Source: Refinitive

Major risk events in the next 7 days

Scheduled risk events will be dominated by the US in the coming days. Next week we see the final US GDP footprint that is likely to confirm a Q1 contraction. Growth is currently a major concern, as the Fed is likely to rise aggressively despite warnings about the state of the consumer and the slowdown in economic growth. Then next Thursday we have PCE data – something Jerome Powell mentioned still has a fair way to go, despite the slight slack in recent prints.

NZD / USD Technical Setup: Price Action Approaches Key Support

Match and filter live economic data via our DaliyFX economic calendar

— Written by Richard Snow for techlives.in

Contact and follow Richard on Twitter: @RichardSaowFX

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