Reserve Bank of New Zealand Governor Wheeler's speech on how the economy was not weak enough to warrant big rate cuts drove NZD/USD higher. Despite hinting that further easing was likely, the kiwi rallied strongly. The RBNZ has cut rates by 25 basis points at both the June and July monetary policy meetings. While the slowing economy remains vulnerable from falling commodity prices and concerns from a weaker China, for now the Bank appears optimistic that the economy might avoid a recession.
Price action on the 240-minute kiwi chart shows that after making a key low at .6551 on July 24th, price has steadily climbed higher. This occurs while the US currency is definitely seeing a pullback against its major trading partners, as market participants await the next big hint from the Federal Reserve. Any potential delays in raising interest rates could see a major round of U.S. dollar weakness.
If price continues to rally, we could see resistance come from .6750- .6770 zone. It is around that area that we could see both a double-top and bearish ABCD pattern form. If price does not respect this resistance, the next major upside target is the .6850 area. If the pattern is respected, key support will come from the .6600 handle.
The trade: Sell NZD/USD at .6760 with a stop loss at .6810 and a take profit at .6660. The Risk/Reward Ratio is 1: 2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading