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NZD/USD, NZD/JPY Rally At Risk Despite Easing Restrictions

NZD/USD, NZD/JPY Rally At Risk Despite Easing Restrictions

Daniel Moss, Analyst

NZD/USD, NZD/JPY, New Zealand Talking Points:

  • The New Zealand Dollar’s rally against its major counterparts may be at risk as it runs into familiar resistance
  • NZD/USD surges into overbought territory but fails at six-year downtrend
  • NZD/JPY explodes 10% after breaking Symmetrical Triangle resistance, fulfilling the measured move. Where to next?

It’s safe to say that recent market optimism and US Dollar weakness has greatly benefitted the New Zealand Dollar, as it recovered from the fresh 5-year lows it set in March.

However, this recent surge has stalled despite Prime Minister Jacinda Ardern lifting coronavirus restrictions on Monday in response to the eradication of active COVID-19 cases.

With NZD sitting at a pivotal level, Wednesday’s FOMC meeting may define the future direction of the risk-sensitive asset.

NZD Index Weekly Price Chart

Image of New Zealand Dollar Price Weekly Chart

Source – Trading View

The New Zealand Dollar has had a tremendous run against its major counterparts since plunging to fresh five-year lows in March, climbing as much as 15% to fall just shy of the yearly high (0.7776).

Prices surged back above former support at the 2018 low (0.7401) to test a resistance zone that has capped upside potential since January 2017 and may continue to present a formidable challenge for the trade-sensitive currency.

Recent development of price, alongside RSI, is eerily similar to the four previous occasions that NZD pushed to test the 2017 downtrend, with the premature development of a Shooting Star candle possibly signalling an impending reversal of the three-month rally.

The reaction of RSI may provide an early indication of inflection, should it remain confined by channel resistance, with a failure of price to breach trend resistance possibly confirming a resumption of the long-term downtrend.

NZD/USD Daily Price Chart

Image of NZD/USD Price Daily Chart

Source – Trading View

NZD/USD surge back to levels not seen since January has pushed RSI into overbought territory for the first time this year, with momentum recording its most extreme positive readings since 2016.

However, failure of price to close above key resistance, at the convergence of the 38.2% Fibonacci (0.6550) and the 2014 downtrend, may trigger a reversal of the 3-month rally.

As RSI begins to fade, entry back below 70 may initiate a temporary pullback to the March high (0.6448) with the 200-day moving average (0.6307) and 61.8% Fibonacci (0.6264) providing the next key regions of support.

Should support remain intact NZD may resume its topside run, with sustained overbought readings on RSI possibly propelling prices to test the psychologically imposing 0.66-handle.

Nonetheless, the development of price in the coming days could determine the short-term future of NZD against its USD counterpart.

NZD/JPY Daily Price Chart

Image of NZD/JPY Price Daily Chart

Source – Trading View

A break of Symmetrical Triangle resistance in late-May ignited buyers, as NZD/JPY surged just shy of 10% and burst into overbought territory.

Fulfillment of the measured move led price to briefly breach the February high (71.346) before capitulating to support at the January low (70.119).

With RSI U-turning back below 70, a more sustained retracement may be on the cards, as bearish divergence of momentum signals exhaustion in the recent explosive rally.

A break of steep trend support, extending from the May 18 low (63.463), could see price collapse back towards the April high (66.16) should bears overcome significant hurdles at the 50% Fibonacci (69.135) and 200-day moving average (68.40).

-- Written by Daniel Moss

Follow me on Twitter @DanielGMoss

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