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NZD/USD Rally at Risk Ahead of ISM

NZD/USD Rally at Risk Ahead of ISM

Talking Points

  • NZD/USD Brexit rebound approaching initial resistance targets
  • Updated targets & invalidation levels

NZDUSD 300min

Chart prepared by Michael Boutros

Technical Outlook: Kiwi has continued to trade within the confines of an ascending channel formation off the weekly lows with the advance now testing near-term resistance at the 50% retracement of the Brexit decline at 7134 (note that the 2016 high-day close comes in at 7118). More significant resistance stands higher at the confluence of the 61.8% retracement & channel resistance at 7173.and the rally is at risk while below this threshold heading into tomorrow’s U.S. ISM Manufacturing release.

A break below the weekly open at 7071 would validate a near-term reversal with such a scenario eyeing subsequent support targets at former trendline resistance (currently ~7000) & the Brexit low at 6970. A move below this region risks substantial losses for the pair with subsequent support targets eyed at the 38.2% retracement at 6878 & the 2016 open at 6828. We’ve been tracking this setup on SB Trade Desk for over a week now and we’ll be on the lookout of a possible breakdown heading into the start of June trade. . Continue tracking this setup and more throughout the week- Subscribe to SB Trade Deskand take advantage of the DailyFX New Subscriber Discount.

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  • A summary of the DailyFX Speculative Sentiment Index (SSI) shows traders are net short NZDUSD - the ratio stands at -1.66(38% of traders are long)-bullishreading
  • The ratio remains unchanged from yesterday; Short positions are 2.3% lower than yesterday and 13.8% below levels seen last week
  • Open interest is 2.3% lower than yesterday and 4.7% below its monthly average.
  • Although SSI is typically used as a contrarian indicator, it’s important to note that the recent reduction in short exposure suggests that the long-bias is waning- Keep in mind the previous instance SSI approached a reading of -2 was back in December when kiwi topped. Look for further reduction in short-exposure to fuel continued losses in kiwi

Help fine-tune you entries, click here to learn more about the DailyFX Grid Sight Index (GSI)

Relevant Data Releases This Week

Other Setups in Play:

Looking for more trade ideas? Review DailyFX’s Top Trading Opportunity of 2016

---Written by Michael Boutros, Currency Strategist with DailyFX

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