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NZD/USD Risks Near-Term Reversal as H&S Formation Remains Intact

NZD/USD Risks Near-Term Reversal as H&S Formation Remains Intact

2016-09-27 16:22:00
David Song, Strategist
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Talking Points:

- NZD/USD Risks Near-Term Reversal as H&S Formation Remains Intact.

- EUR/USD Remains Stuck in Narrowing Range; ECB President Draghi on Tap.

DailyFX

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

NZD/USD

0.7288

0.7331

0.726

14

71

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using Trading View

  • NZD/USD stands at risk of facing a near-term reversal as it fails to preserve the upward trend from the end of May and appears to be carving a head-and-shoulders formation; keeping a close eye on the Relative Strength Index (RSI) for confirmation/conviction as the oscillator comes up against trendline support.
  • Even though the Reserve Bank of New Zealand (RBNZ) warns the ‘current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range,’ a decline in NZD/USD may encourage Governor Graeme Wheeler to retain the current policy at the next interest-rate decision on Nov 16 as the central bank retains the verbal intervention in the local currency and argues ‘a decline in the exchange rate is needed.’
  • Will continue to watch the near-term range, with a break/close below 0.7200 (38.2% expansion) to 0.7210 (38.2% retracement) raising the risk for further decline, but a closing price above 0.7350 (61.8% expansion) may shift the outlook towards the topside as it would negate the scope for a head-and-shoulders formation.

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

EUR/USD

1.1201

1.1259

1.1198

53

61

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • EUR/USD may continue to face a narrowing range as the pair remains stuck within the wedge/triangle formation carried over from the summer months; may see the pair continue to consolidate going into the end of the month as market participants weigh the outlook for monetary policy.
  • With European Central Bank (ECB) President Mario Draghi scheduled to speak over the next 24-hours, the central bank head may keep the door open to further embark on the easing cycle as the Governing Council struggles to achieve its one and only mandate for price stability, but may see the committee merely extend the deadline for its non-standard measures as officials continue to monitor the impact of the zero-interest rate policy (ZIRP).
  • Need a break/close below the 200-Day SMA (1.1154) to favor the downside as it lines up with trendline support, while the topside hurdle stands at 1.1300 (23.6% retracement) to 1.1330 (38.2% expansion).
DailyFX SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd has been net-short EUR/USD since September 19, while retail positioning on NZD/USD has flipped to net-long over the last 24-hours of trade.
  • With EUR/USD SSI pushing deeper into negative territory, will keep a close eye on ratio as it hit a 2016-extreme back in May when it slipped to -2.67. SSI currently stands at -1.39.
  • Net-long positioning for NZD/USD has increased 11.7% from the previous week, with short positions also 7.1% during the same period as open interest stands 3.3% above the monthly average.

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

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. 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.

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