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NZD/USD Retail Sentiment Approaches 2016 Extreme Ahead of RBNZ

NZD/USD Retail Sentiment Approaches 2016 Extreme Ahead of RBNZ

David Song,

Talking Points:

- NZD/USD Retail Sentiment Approaches 2016 Extreme Ahead of RBNZ.

- USDOLLAR Consolidation to Continue as Market Positioning Remains Stretched.

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.


NZD/USD Daily Chart

Chart prepared by David Song

  • NZD/USD climbs to a fresh monthly high of 0.7264 ahead of the Reserve Bank of New Zealand (RBNZ) interest rate decision even though the central bank is widely anticipated to reduce the official cash rate to a fresh record-low of 2.00%; may see a further appreciation in the exchange rate as the recent advance undermines expectations for a head-and-shoulders top, while the Relative Strength Index (RSI) appears to be breaking out of the bearish formation carried over from June.
  • With market expectations heavily leaning for a rate-cut, NZD/USD stands a risk for a knee-jerk reaction should RBNZ Governor Graeme Wheelerfail to deliver a dovish outlook for monetary policy and endorse a wait-and-see approach for the foreseeable future.
  • Break of the June high (0.7297) would largely negate the head-and-shoulders formation, with the topside hurdle coming in around 0.7330 (38.2% retracement) to 0.7340 (61.8% expansion), while support comes in around 0.6950 (38.2% retracement) to 0.6980 (38.2% expansion).
  • The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-short NZD/USD since July 28, with retail sentiment approaching the most extreme reading for 2016 when the ratio slipped to -2.58 during the previous month.
  • The ratio currently sits at -2.15 as 32% of traders are long, with short positions 29.8% higher from the previous week, while open interest stands 14.2% above the monthly average.

Why and how do we use the SSI in trading? View our video and download the free indicator here

USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
US Dollar Index11923.4111972.0211902.93-0.36126.54%
USDOLLAR Daily Chart
  • The USDOLLAR may continue to consolidate ahead of the slew of data prints due out on Friday as it holds above the monthly low (11,881), but the greenback remains at risk of facing headwinds over the near-term as Fed Funds Futures continue to highlight limited expectations for a 2016 Fed rate-hike.
  • With Fed Funds Futures currently showing a 12% probability for a rate-hike in September, the Fed’s Economic Symposium scheduled towards the end of August may heavily impact the monetary policy outlook, but Fed Chair Janet Yellen may continue to endorse a wait-and-see approach especially ahead of the U.S. Presidential election in November.
  • Need a close above 11,989 (50% retracement) to open up the next topside region of interest coming in around 12,049 (78.6% retracement) to 12,064 (61.8% retracement).
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Weekly Technicals: NZD/USD - Bye Bye Birdie

--- 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.