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US Dollar Beginning to Correct Higher, NZD/USD Upside Stretched

US Dollar Beginning to Correct Higher, NZD/USD Upside Stretched

2020-11-19 12:00:00
Justin McQueen, Analyst
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USD, NZD/USD Analysis & News

  • NYC School Shutdown Triggers Pullback in Risk Appetite
  • Correcting Dollar Shallow Thus Far, NZD Upside is Stretched
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NYC School Shutdown Triggers Pullback in Risk Appetite

Near-term risks have become more apparent in recent sessions, although given the recent vaccine optimism, markets for a large part had taken a blind eye to the near-term negatives. However, while sentiment was flagging that equity markets were looking somewhat stretched on the upside and in G10 FX that pertained to the likes of NZD, eyes were for a trigger to spark a modest pullback. The trigger came late in the US session as NYC announced renewed restrictions with public schools to shutdown from today. The risk being that this may be a precursor to further measures across the rest of the US.

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US Dollar Beginning to Correct Higher, NZD/USD Upside Stretched

Correcting Dollar Shallow Thus Far, NZD Upside is Stretched

Judging by the European reaction to the renewed restrictions, the move looks to be slightly more of a USD corrective play as opposed to a full scale risk aversion, given that the JPY is trading relatively flat against majors with the exception of antipodeans. With that in mind, in light of antipodeans being on a tear as of late, most notably NZD following the RBNZ. A larger pullback in risk appetite, alongside a bounce in the USD is likely to see the NZD among the larger underperformers. On the topside, near-term resistance resides at 0.6915-20 with pullbacks thus far capped at 0.6880-85, a break below puts 0.6840-50 in focus.

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Change in Longs Shorts OI
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Weekly 0% 12% 8%
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NZD/USD Chart: 4-Hour Timeframe

US Dollar Beginning to Correct Higher, NZD/USD Upside Stretched

Source: Refinitiv

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