The key catalyst for last night’s New Zealand dollar drop came from Fonterra’s reduction in its forecast to have prices fall from NZD$7 to $6 per kg milk solids. The currency remains heavy as the Reserve Bank of New Zealand has been unhappy with the overall strength of the kiwi. The Bank has been slightly more dovish in their comments and expectations are growing for the rate hike cycle to possibly take a slight break.
The key driver in the next major move may come from geopolitical tensions that recently continue to support the U.S. dollar as U.S. treasury demand remains strong on safe-haven buying. The four-day selloff on NZD/USD may target .8455 which is the 200-day SMA and if weakness persists, it could possibly form a double-bottom at .8400.
Last week, I targeted a slide towards .8510 after identifying an important double-top formation that occurred earlier this month along with a bearish ABCD pattern. If weakness persists .8400 could provide key support, but if that level is taken out, we may look to buy around the .8250 area.
The trade: Sell NZDUSD at .8510 with a stop loss at .8560 and a take profit at .8420. The Risk/Reward Ratio is a just under 1:2.
Edward J. Moya
WorldWideMarkets Online Trading