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New Zealand Dollar Forecast: Is NZD/USD Due for a Reversal Lower?

New Zealand Dollar Forecast: Is NZD/USD Due for a Reversal Lower?

Peter Hanks, Strategist

New Zealand Dollar Forecast:

New Zealand Dollar Forecast: Is NZD/USD Due for a Reversal Lower?

After surging throughout December, NZD/USD has paused at long-term trendline resistance around 0.6745. Trading in overbought territory for the majority of December, it is of little surprise the Kiwi is looking to take a breather now that it has encountered a rather formidable trendline. Originating from mid-2014, the descending trendline has kept price contained ever since and the level conveniently coincides with a nearby Fibonacci level – bolstering the zone’s influence.

NZD/USD Price Chart: Daily Time Frame (December 2018 – January 2020) (Chart 1)

NZD/USD price chart

The technical barriers, coupled with a modest retreat in risk appetite, helped spark a NZD/USD pullback that could see the pair extend lower as it looks to consolidate last month’s gains. While it is currently unclear if NZD/USD will continue higher in the longer-term, the release of the FOMC’s December meeting minutes on Friday could dictate the shorter-term direction and compound recent Kiwi weakness.

With that in mind, an initial area of support in the event of a deeper reversal exists around the 0.6580 to 0.6550 area which has spurred price indecision in the past. Given the current spot price, the area could look to provide a base for a subsequent retest of overhead resistance after the pair has consolidated further.

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On the other hand, a dovish takeaway from the FOMC’s meeting minutes could see NZD immediately retest resistance, likely sending NZD/USD back into overbought territory. If the combined technical levels fail to keep price contained at the 0.6745-mark, secondary resistance may take shape at the 0.6790 level which coincides with the pair’s swing high in July.

Still, a move beyond the long-term descending trendline may signal a broader shift in the underlying fundamental landscape and open the door to further NZD/USD gains. In the meantime, however, price action will likely cool until the FOMC minutes are released and the market can run with the implications. For updates on NZD/USD after the minutes are released, follow @PeterHanksFX on Twitter.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more:Australian Dollar Forecast: AUD/USD Surges, but Rally Looks Overdone

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