NZD/USD Rally Unravels Ahead of Yellen Testimony

2017-07-11 17:44:00

Michael Boutros,

To receive Michael’s analysis directly via email, please SIGN UP HERE

Talking Points

NZD/USD responds to slope resistance- decline now approaching initial support targets
Check out our New 3Q NZD/USD projections in our Free DailyFX Trading Forecasts.
Join Michael for Live Weekly Strategy Webinars on Mondays at 12:30GMT

NZD/USD Daily

Technical Outlook:Last month we highlighted a multi-year trendline resistance in NZDUSD as price was marking ongoing divergence in momentum. It’s taken nearly two weeks for the pair to finally turn over (weakest performer vs the USD today) with the decline now approaching initial support targets at the 50-line / June swing lows at 7185-7200.

Key resistance & broader bearish invalidation is now lowered to the 2017 high-day reversal close at 7301 with a break lower targeting 7130/44 & the 200DMA which converges on the median-line around 7100- both areas of interest for near-term exhaustion.

NZD/USD 240min

Notes: A closer look at the 240min chart highlights a near-term descending pitchfork formation extending off the June highs with the upper parallel converging on the weekly opening range now at 7283- immediate focus is lower below this level. Interim resistance now 7244 backed by 7262.

Initial support objectives are eyed along the 50-line (currently ~7195) backed closely by down-slope support at 7170 & the 38.2% retracement at 7144. From a trading standpoint I’ll favor fading strength sub-7262 heading into the end of the week. Keep in mind the we’re pretty light on New Zealand data this week so look for the dollar to drive price action with Janet Yellen’s semi-annual monetary policy testimony before congress likely to fuel added volatility in the USD crosses.

A summary of IG Client Sentiment shows traders are net-short NZD/USD- the ratio stands at -5.01 (16.6% of traders are long) - bullish reading
Retail has been net-short since May 24th; price has moved 3.9% higher since then
Long positions are 31.8% higher than yesterday and 7.6% higher from last week
Short positions are 1.0% lower than yesterday and unchanged from last week
We typically take a contrarian view to crowd sentiment,and the fact traders are net-short suggests AUDUSD prices may continue to rise. That said, positioning is less net-short than yesterday & compared with last week and the recent changes in sentiment warn that the current NZDUSD price trend may soon reverse lower despite the fact traders remain net-short.
Bottom line: look for a continued build in long positioning / trimming in short exposure to further support the reversal scenario.

What to look for in NZD/USD retail positioning - Click here to learn more!

---

Relevant Data Releases