NZD Technical Analysis

The New Zealand Dollar resumed the downtrend started in late July against its US cousin after a brief consolidative pause, hitting the lowest level in a month. Resumption was triggered after US retail sales data topped consensus forecasts, sending the greenback broadly higher (as expected).

From here, a daily close below the 50% Fibonacci retracement at 0.7188 opens the door for a test of the 61.8% level at 0.7101. Alternatively, a reversal back above the 38.2% Fib at 0.7276 sees the next upside barrier at 0.7384, marked by the 23.6% retracement.

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The New Zealand Dollar looks to be tracing out a choppy down trend after completing a bearish Head and Shoulders pattern, signaling a top in place against its US cousin. The move lower is confined within an emerging falling channel originating in mid-to-late August.

Near-term support is now at 0.7163, the 23.6% Fibonacci expansion, with a break below that opening the door for another test of the August 31 low at 0.7132. Alternatively, a daily close above 0.7264 that takes out the channel top and the September 5 high exposes the 38.2% Fib retracement at 0.7295 next.

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The New Zealand Dollar has seemingly invalidated a bearish Head and Shoulders chart formation against its US namesake but scope for recovery may be limited. Polling data ahead of the general election on September 23 pushed prices higher but gains might prove corrective in the context of a longer-term decline.
Sizing up current positioning, a daily close above the 23.6% Fibonacci expansion at 0.7307 opens the door for a test of the 38.2% level at 0.7415. Alternatively, a reversal back below the 14.6% Fib at 0.7240 paves the way for another challenge of the August 31 low at 0.7132.

The short NZD/USD trade from 0.7230 has been stopped out. The tepid move higher from the August 31 low may yet amount to a bearish Flag pattern preceding continuation of the decline from the July 27 swing top. Confirmation is absent for now however, arguing against re-entering short at this time.

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The New Zealand Dollar invalidated would-be a down trend resumption signal to try its luck above 0.73 against its US counterpart once more. Recent gains may yet prove to be corrective, but sellers have struggled to sustain momentum ahead of the upcoming general election on September 23.

The short NZD/USD trade activated at 0.7219 has been stopped out. Prices are now too close to resistance to make entering long viable from a risk/reward perspective while the absence of a clear-cut bearish reversal signal argues against re-entering short. On balance, that makes the sidelines seem most attractive.

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The New Zealand Dollar put in a bullish Morning Star candlestick pattern, hinting that a reversal higher against its US counterpart may be in the works. Interestingly, the currency seems to be finding strength despite continued political uncertainty after an inconclusive general election.

Near-term resistance is in the 0.7132-40 area (August 31 low, 23.6% Fibonacci retracement), with a daily close above that opening the door for a test of the 38.2% level at 0.7196. Alternatively, a reversal back below the 14.6% Fib at 0.7105 paves the way for another challenge of resistance-turned-support at 0.7054.

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NZD/USD has fallen hard in the past five trading days down nearly 400 pips. A strong move of this nature suggests NZD/USD may be in an impulsive wave lower.

The move lower appears incomplete and the next cluster of wave relationships shows up near .65-.66.
The Elliott Wave model we are following suggests we are in a wave (iii) lower. Third waves tend to be the longest and strongest of the Elliott Wave sequence. Therefore, it should not come as a surprise to see an 800 pip sell off in the past month when it is delivered through a third wave.

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The New Zealand Dollar has broken support that has been holding it up since mid-May, hinting that deeper losses against the currency’s US namesake area ahead. The drop came amid broad-based risk aversion after US Special Counsel Robert Mueller subpoenaed the Trump campaign. From here, a daily close below the 38.2% Fibonacci expansionat 0.6745 sees the next downside barrier marked by the 50% level at 0.6672. Alternatively, a turn back above the 23.6% Fib at 0.6835 – now recast as resistance – opens the door for a retest of the 14.6% expansion at 0.6890.

Technical and risk/reward parameters appeared acceptable to attempt a short position and NZD/USD was sold at 0.6804, initially targeting 0.6745. A stop-loss will be activated on a daily close above 0.6837. Profit on half of the trade will be booked at the stop moved to breakeven if (and when) the first objective is met.

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AUD/NZD
The third quarter of the year saw some interesting shifts in the dynamics between Australia and New Zealand. While the RBA largely tried to stay behind the headlines this year, New Zealand has seen some considerable change over the past couple of months.

Jacinda Ardern was elected as Prime Minster of the nation in early-August, and matters haven’t really been the same for the New Zealand Dollar since. Ms. Ardern has already floated ideas that could amount to some pretty large changes at the RBNZ, and at this point, we aren’t even sure of who will be leading the bank next year as interim Governor Grant Spencer has only recently taken over for from RBNZ Governor, Graeme Wheeler. A more permanent replacement is expected at some point next year, but by the time we get that name, the RBNZ may have a) an additional mandate of managing employment as well as inflation and b) another governing body assisting with rate policy, as the Reserve Bank Act remains up for debate.

This is a lot of uncertainty and markets, by and large, hate uncertainty. This also presents an opportunity for continued divergence between Australia and New Zealand Dollars, and this can be followed through the AUD/NZD cross-pair.
AUD/NZD has been largely range-bound for most of the past three-and-a-half years. Most of that time has been spent with price action oscillating between 1.0300 and 1.1300 with only a few instances of outliers. But, as recent themes of Kiwi-weakness have begun to show with a bit more prominence, a clean trend has started to show in AUD/NZD inside of this range, and there is the potential for that trend to continue in order to finally resolve almost four years of mean-reversion. Sustained breaks above 1.1300 opens the door for bullish exposure as we move into 2018.

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The dominant New Zealand Dollar trend continues to favor the downside against its US counterpart despite an apparent deceleration in the pace of decline. The steeper down move from the late September swing high seems to have ended but a shallower series of lower highs and lows remains in play.

From here, a daily close below the November 17 low at 0.6781 exposes range floor support at 0.6752, followed by the 38.2% Fibonacci expansion at 0.6697. Alternatively, a push above 0.6935 (23.6% Fib retracement, channel top) exposes the 0.7030-54 area (38.2% retracement, October 9 low, former trend line support).

Risk/reward considerations argue against taking a short trade at current levels. With that in mind, a short entry order has been established to sell NZD/USD at 0.6895. If triggered, the trade will initially target 0.6793 and carry a stop-loss activated on a daily close above 0.6946.

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Critical support remains at 0.6781, November 17 low. A daily close below that targets a channel bottom now at 0.6736, followed by the 38.2% Fibonacci expansion at 0.6697. Alternatively, a move back above the 23.6% Fib retracement at 0.6935 exposes the 0.7030 (38.2% retracement, former trend line support).

The entry order to sell NZD/USD at 0.6895 established last week has been triggered. The position initially targets 0.6793, with a stop-loss to be activated on a daily close above 0.6946. Profit on half of open exposure will be booked and stop moved to breakeven when (and if) the first objective is met.

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