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NZD/USD Carves Double-Top; USDOLLAR Forms Bullish-Engulfing

NZD/USD Carves Double-Top; USDOLLAR Forms Bullish-Engulfing

David Song, Strategist

Talking Points:

- NZD/USD Extends Losses as Global Dairy Trade Auction Disappoints; NZ Employment on Tap.

- USDOLLAR Rebound to Benefit From Upbeat ADP Employment, ISM Non-Manufacturing Survey.

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USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • NZD/USD appears to have made a failed attempt to break the April high (0.7053) as the Global Dairy Trade auction shows a 1.4% decline in the index, while the Relative Strength Index (RSI) appears to be carving a lower-high during the first week of May; risk of a double-top formation may spur a more bearish outlook for the kiwi-dollar ahead of the next Reserve Bank of New Zealand (RBNZ) interest rate decision on June 9.
  • Even though New Zealand Employment is projected to increase another 1.3% during the first three-months of 2016, and uptick in the jobless rate accompanied by subdued wage growth figures may drag on the exchange rate as it fuels speculation for additional monetary support.
  • Downside targets are back in focus, with the first hurdle up at 0.6900 (50% & 100% expansion), followed by 0.6820 (61.8% expansion) to 0.6840 (61.8% retracement).
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail FX crowd flipped back net-short NZD/USD on April 28, but the ratio has bounced back from recent extremes after slipping to -1.50 earlier this week.
  • The ratio currently stands at -1.47 as 41% of traders are long, with short positions 24.0% higher from the previous week, while open interest stands 6.3% below the monthly average.

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USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index11770.0911775.9611673.740.53165.34%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • The USDOLLAR may face a larger rebound ahead of the Non-Farm Payrolls (NFP) report as it carves a bullish-engulfing pattern, while the RSI fails to break into oversold territory.
  • With ADP Employment expected to increase another 195K in April, while the ISM Non-Manufacturing survey is anticipated to show a pickup in service-based activity, a series of positive developments may boost the appeal of the greenback as it highlights an improved outlook for growth and inflation.
  • With the USDOLLAR at risk of a more meaningful correction, the first topside region of interest comes in around 11,745 (50% retracement) to 11,759 (23.6% retracement), followed by 11,951 (38.2% expansion) to 11,965 (23.6% retracement).
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--- Written by David Song, Currency Analyst

To contact David, e-mail Follow me on Twitter at @DavidJSong.

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