NZD/USD Rally Vulnerable Ahead of 7300- New Zealand CPI on Tap

2017-01-25 17:29:00

Talking Points

NZD/USD challenges resistance into 7300 ahead of New Zealand CPI
Updated targets & invalidation levels
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Technical Outlook: Kiwi is up more than 4.6% year-to-date with the rally now eyeing key technical resistance at 7292/96 heading into tonight’s New Zealand Consumer Price Index (CPI). This level is defined by the March 2015 low-day close & the July high-day close and converges on former channel support over the next few days. The immediate long-bias is at risk while below this threshold.

NZDUSD 120min

Notes: A closer look at price action shows Kiwi trading within the confines of an ascending pitchfork formation extending off the December lows with the overnight stretch-high tagging the upper parallel. We still could see some further upside from here but the risk for a near-term exhaustion prevails while below 7292/96. A break below the median-line targets 7186 & the lower parallel / weekly open at 7162. Ultimately a break below this region would be needed to suggest a more significant turn is underway.

A rally surpassing 7300 would invalidate the reversal play with such a scenario targeting 7352 & 7400. Keep in mind inflation is expected to uptick to 1.2% y/y, up from just 0.4% y/y in Q3 and would be the highest print since June of 2014. From a trading standpoint, heading into the release I would be looking for exhaustion while below 7300.

A summary of the DailyFX Speculative Sentiment Index (SSI) shows traders are short NZD/USD - the ratio stands at -1.64 (38% of traders are long)- bullish reading
Long positions are 2.6% higher than yesterday and 13.6% above levels seen last week
Short positions are 2.4% lower than yesterday but 1.1% above levels seen last week
Open interest is 0.6% lower than yesterday but remains 4.3% above its monthly average
The current dynamic offers a mixed signal but it’s worth noting that increasing long positions / narrowing in the SSI ratio from recent January extremes (-1.88) suggest that the immediate advance is vulnerable near-term, especially as price approaches technical resistance.

Relevant Data Releases