NZD/USD 2016 Rally at Risk Sub-7500 as Sentiment Stretches

• NZDUSD Responds to key resistance range at fresh 2016 highs
• Updated targets & invalidation levels

NZDUSD Daily

Chart Created Using TradingView

Broader Technical Outlook: Kiwi has made an initial response to the critical resistance zone highlighted in yesterday’s analyst pick at 7481-7515. “This region is defined by the 161.8% extension of the advance off the 2015 low, the 50% retracement of the July 2014 decline and basic parallel resistance extending off the June high. The long-bias is at risk near-term while below this threshold…”

The pair is now testing interim support at 7380/91 & a break here would be needed to validate a more significant reversal in the pair. Note that daily RSI has now tested & reversed off the underside of a former support trigger keeping the risk lower for now. A break lower targets key near-term support into the March 2015 low-day close / July high-day close at 7292/96.

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NZDUSD 120min

Notes: We discussed this trade in today’s webinar on SB Trade Desk after noting the pair had marked bearish divergence into a support-trigger in early European trade. The decline is now hovering just above last week’s high at 7381 and is backed closely by a basic 23.6% retracement of the late- July advance at 7360. Immediate resistance stands at yesterday’s close (2016 HDC) at 7450 with our bearish invalidation level steady at 7481-7515.

From at trading standpoint I would be looking to fade strength while below key resistance with a move sub-7292/96 needed to suggest that a more significant reversal is under way. Such a scenario eyes subsequent support targets at the monthly open at 7249, 7218 & the 61.8% retracement at 7155. A quarter of the daily average true range (ATR) yields profit targets of 25-28 pips per scalp. Event risk is rather limited into the weekend with the New Zealand GDP & the U.S. Consumer Price Index (CPI) and Retail Sales highlighting the docket next week. Continue tracking this setup and more throughout the week- Subscribe to SB Trade Desk and take advantage of the DailyFX New Subscriber Discount.

• A summary of the DailyFX Speculative Sentiment Index (SSI) shows traders are net shortNZDUSD- the ratio stands at -2.66 (27% of traders are long)- bullish reading
• Long positions are 8.6% higher than yesterday while short positions fell 15.2% over the same time period.
• Open interest is 9.8% lower than yesterday and 13.0% above its monthly average.
• Note that retail sentiment has come off extremes not seen since not seen July of 2014 – That was the yearly high in price (SSI registered -6.19). With that said, the pair is vulnerable for further weakness here and a continued narrowing in net positioning would further support this notion.

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Relevant Data Releases

Other Setups in Play:

• USD/CAD Rebound Vulnerable to Canada Employment- Key Support 1.2832
• EUR/USD ECB Setup- Outlook Remains Constructive Above 1.1140
• USDJPY: NFP Game-plan Same as Jackson Hole- Buy the Washout
• AUDUSD Searches for Support as NFPs Take Center Stage

Looking for trade ideas? Review DailyFX’s 2016 3Q Projections

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

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