The New Zealand dollar is giving up most of its gains from the beginning of the week. The advance came as surprise after the Global Dairy Trade auction showed that dairy prices unexpectedly dropped. Dairy prices are close to a six year low and could weigh heavily on the kiwi, because milk powder is a key New Zealand export. The rally from .7076 to .7200 is mostly being attributed to profit taking that hit the US dollar.
Price action on the NZDUSD daily chart shows that since forming a bearish Gartley pattern on April 17th, the longer-term downtrend has resumed. Earlier this week, price tentatively formed a bullish ABCD pattern that produced a rally that has found resistance from the trendline that started back with the .8834 high on July 10th, 2014.
If bearish trend momentum remains strong and breaks below the 2015 low of .7076, further support could come from the .6843 level. Major resistance will come from the .7250 level.
The trade: Sell NZD/USD at .7150 with a stop loss at .7250 and a take profit at .6850. The Risk/Reward Ratio is around 1: 3
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading