NZD/USD: Has the Rally Finally Peaked?
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- NZDUSD responds to multi-year trendline resistance; looking for follow through
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Technical Outlook:NZD/USD failed another attempt to breach above the 2017 high-day close today at 7301 with intraday price action reversing sharply off basic trendline resistance extending off the April 2015 high. Note that this slope also converges on a median-line parallel extending off 6/14 high.
The rally was accompanied by ongoing divergence in momentum and once again highlights the risk for a corrective pullback in the pair. That said, we’ll be looking for further evidence of a turn in near-term price action before getting aggressive on the short-side.
Notes: The rally registered a high at the 78.6% retracement of the decline off the 2016 high(7343) in Asia before turning lower despite broader USD weakness. Interim support rests with the weekly opening range low at 7260/62 with a break below 7226 needed to suggest a more meaningful pullback is underway. Such a scenario targets subsequent support objectives at 7170 backed by 7130.
A close above 7300 would put us neutral on the pair with a breach above 7343 needed to mark resumption of the broader up-trend. Remember that last week we noted that NZDUSD sentiment had reached record extremes and while the ratio has pulled back, price still needs to follow through to validate the reversal.
- A summary of IG Client Sentiment shows traders are net-short NZD/USD- the ratio stands at -5.1 (16.4% of traders are long) - bullish reading
- Retail has been net-short since May 24th; price has moved 5.2% higher since then
- Long positions are 1.6% lower than yesterday and unchanged from last week
- Short positions are 9.8% lower than yesterday and 4.6% higher from last week
- Positioning is less net-short than yesterday but more net-short from last week and the combination of current sentiment and recent changes offers a mixed NZDUSD trading bias. That said, price is at resistance, and if the pair pulls back, look for an accompanied build in long-positions for further conviction of a near-term reversal in the pair.
See how shifts in NZD/USD retail positioning are effecting market trends- Click here to learn more about IG Client Sentiment indicators!
Relevant Data Releases
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- 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.