Today’s kiwi selloff was spurred by the third monthly drop in the ANZ Business Outlook. A bearish stance is finally becoming too popular amongst traders.
Three weeks ago, I identified a key turning point for the kiwi. The Reserve Bank of New Zealand said that they need to weaken their currency and price formed a bearish butterfly pattern. The major reversal reached my downward target of .8572, which at the time was the 50-day Simple Moving Average (SMA). The next key support level is now the 200-day SMA at .8342.
With many late shorts jumping on this freefall, we will wait to see if we see some profit taking or a possible short squeeze allow price to temporarily recapture the .8500 handle.
The kiwi plummet may eventually bottom out near the .8250 area, which is the 50.0% Fibonacci retracement of the September 2013 low to this year’s high of .8778. Only a daily close above the .8600 handle and the 50-day SMA will end my bearish bias.
The trade: Sell NZDUSD at .8520 with a stop loss at .8570 and a take profit at .8575. The Risk/Reward Ratio is a little better than 1:2.
Edward J. Moya
WorldWideMarkets Online Trading