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The New Zealand Dollar has this week broken to the upside from a triangle pattern on the daily NZD/USD chart, suggesting further upside in the days ahead. As the chart below shows, trading for most of this year has been characterized by lower highs and lower lows, and the breakout will be significant if the pair can break through the 100-day moving average – the red line on the chart – which has provided resistance for the past couple of days.
Moreover, the relative strength indicator (RSI) has yet to move into overbought territory.
Chart: NZD/USD Daily Timeframe (January to May 24, 2017)
If the pair does break higher, the first target will be the April highs at 0.7054, followed by the March 21 high at 0.7087 and then the March 1 high at 0.7146. On the downside, support from the 50-day moving average comes in at 0.6955 but the important level to watch is the previous downward-sloping resistance line from the February high. Currently at 0.6913, that would be a sensible point at which to place a stop.
Note too that the latest IG Client Sentiment data also point to a climb in the pair.
Retail trader data show 48.6% of traders are net-long with the ratio of traders short to long at 1.06 to 1. The number of traders net-long is 21.0% lower than yesterday and 17.3% lower from last week, while the number of traders net-short is 19.1% higher than yesterday and 7.4% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests NZDUSD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger NZDUSD-bullish contrarian trading bias.
--- Written by Martin Essex, Analyst and Editor
To contact Martin, email him at martin.essex@ig.com
Follow Martin on Twitter @MartinSEssex
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