NZDUSD May Rally as Retail Traders Increase Their Short Positions
NZDUSD price and analysis:
- NZDUSD is well placed to move higher after its losses over the last three months.
- Retail trader data show the numbers of traders net-short has surged, and that means gains for the pair on a contrarian view of crowd sentiment.
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Sentiment analysis suggests gains for NZDUSD
Retail trader positioning data collated by DailyFX show the number of traders net-short NZDUSD has is surging higher: up 24% from yesterday and a remarkable 44% from last week. If you take a contrarian view of crowd sentiment, as we do at DailyFX, that is a signal that the current downtrend in NZDUSD may soon reverse higher.
As the chart below shows, the pair has been in a downward-sloping channel for the past three months. That is bad news for retail traders, who have been net-long since April 22, when it was at 0.7360. Since then it has dropped by 7.7% and almost 62% of those traders are still net-long, with the ratio of traders long to short more than 1.6 to one.
Still, the recent jump in net-short positions suggests a rally is likely even though traders remain net-long overall.
NZDUSD Price Chart, Daily Timeframe (April 3 – July 11, 2018)
From a technical perspective, after two days of losses NZDUSD is approaching oversold territory with the 14-day RSI at 41 – dropping towards the 30 level at which it would be regarded as oversold. If this analysis proves correct, a climb towards the resistance line joining the lower highs recorded since mid-April, now at 0.6896, is possible.
The 50-day moving average lies just above that, and a breakthrough would target the 100-day moving average at 0.7042 and then the highs between 0.7054 and 0.7066 reached between June 6 and June 13.
However, a tight stop would be wise as there is little support before the July 2/3 lows at 0.6690 and 0.6688, which guard the trendline support at 0.6651.
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--- Written by Martin Essex, Analyst and Editor
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.