Since February, the New Zealand dollar rallied steadily against the U.S. dollar after price respected both 50-day and 100-day Simple Moving Averages. The gains accelerated in March after 50-day SMA crossed over the 100-day SMA which was already trending above the 200-day SMA. That particular sequence of SMA’s is called the Correct Order of Moving Averages and often provides a very strong bull market, which also benefited from the New Zealand central bank's recent tightening bias. Hedge funds often like to use the interest rate differential to their advantage and that definitely played a part in the move from .8300 to .8778.
Yesterday the kiwi had a major reversal after the Reserve Bank of New Zealand mentioned that they may need to weaken their currency. Price action overnight for NZD/USD was unable to recapture the .8700 handle and probably will not since price is still under pressure post Federal Chairman Janet Yellen’s address to Congress
The bearish correction will probably not be immediate, but traders should not be surprised if we see key selloffs occur early next week target the 50-day SMA at .8572. Major downside targets are .8250, which is the 50.0% Fibonacci retracement of the September 2013 low to this year’s high of .8778 which was made yesterday. Major resistance remains at .8800 psychological level and long-term stops should be above .8850, several pips above the record high made in 2011, and an area which will be a major price barrier if we do see bullishness return.
The trade: Sell NZDUSD at .8670 with a stop loss at .8710 and a take profit at .8575. The Risk/Reward Ratio is a little better than 1:2.
Edward J. Moya
WorldWideMarkets Online Trading