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NZDUSD May Rally as Retail Traders Increase Their Short Positions

NZDUSD May Rally as Retail Traders Increase Their Short Positions

Martin Essex, MSTA, Analyst

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.

Our trading forecasts for Q3 have just been published; you can find them here.

And check out the IG Client Sentiment data to help you trade profitably.

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)

Latest NZDUSD price chart.

Chart by IG

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

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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