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2 Reasons NZD/USD Could Be a Buy

2 Reasons NZD/USD Could Be a Buy

Rob Pasche, Forex Trading Instructor


Talking Points:

  • NZD/USD has risen over 5% from its multi-year low
  • Strong resistance has been broken
  • NZD/USD SSI is at -1.55, a bullish signal

Since its low on February 3rd, the NZD/USD has been on a tear to the upside. It’s rallied as high as 400 pips from the bottom, and doesn't show much sign of stopping. Today we look at two reasons why being bullish the NZDUSD could be a potential opportunity.

NZD/USD Has Broken Resistance - Bullish

On the Daily chart below, we can see the bearish price channel formed late in 2014. The lower trend line was respected from September-December until we witnessed a breakout in the middle of January. The kiwi has recovered, tested prior support level (which is now acting as resistance) and has now finally broken above it.

This break above resistance is confirmed with today's weekly close above this level. A confirmed break of resistance is a bullish signal and could mean price will rally higher in the future.

Learn Forex: NZD/USD Breaking Resistance

(Created using Marketscope 2.0 charts)

NZD/USD Sentiment is Negative - Bullish

I love analyzing retail sentiment. It is my favorite tool and I believe it turned my trading career around. So I always look to see what sentiment is doing before a trade is placed. For the past couple weeks, sentiment has been relatively flat with no major imbalance between long and short traders on the major currency pairs. The only exception to this has been the NZD/USD the past few days. We've seen NZD/USD SSI the most negative it has been in months, which historically is a bullish signal.

Learn Forex: NZD/USD Speculative Sentiment Index (SSI) - Negative

(Screen capture from DailyFX On-Demand)

The chart above shows how NZDUSD's price has reacted to varying levels of SSI. When the SSI (in light blue) has been in negative territory, price tended to move higher. And since SSI is at the most negative value it's been in a long time, price could rally because of it.

In Conclusion

It's important to state that there are no guarantees in trading, and even though this setup shows promise, it does not mean it will work out. Reading charts and analyzing sentiment can lead to great trades, but it can also lead to losses. So as always, perform your own due diligence before placing any trades on your own account. Also, feel free to utilize a demo account to practice trading risk-free before trading with real money.

Good trading!

---Written by Rob Pasche

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