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NZD USD Bottomed Out at 50% Fibonacci for 5th time in 2017


May.23.2017

New Zealand trade balance beat expectations earlier during the Asian session on Wednesday but NZD USD bottomed out at 50% Fibonacci last week for the 5th time in 2017. Now the question is if this is the continuation of the long-term range?  Or the beginning of a new uptrend? Let's conduct an IDDA to find out!

 

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1- Technical Points: NZD USD Bottomed Out at 50% Fibonacci for 5th time

Daily Time Frame:  The NZD USD pair formed a triple bottom chart pattern this May, with the bottoms falling approximately on the 50% Fibonacci level. This level retraces the strong uptrend which started in September 2015 and lasted for a year. After NZD USD bottomed out, and broke above the neckline, it entered the daily Ichimoku cloud. However the Kijun line and the Tenkan line are just meeting up for a potential crossover, which is the first  Ichimoku Kinko Hyo confirmation signal. Based on our Ichimoku Secrets strategy, it could still be too early to call this a bullish reversal.

The pair has been forming lower highs since its last peak in September 2016 at 0.7484. The future cloud is in the red. And the pair seems to be struggling around our pivot level of 0.7010, which falls on 38% Fibonacci level.

NZD USD Bottomed Out Entering Ichimou Cloud - Daily Chart NZD USD Bottomed Out Entering Ichimou Cloud - Daily Chart

 

At this point, the pair is more likely to form yet another lower high at the next pivot at 0.7117, or the 23% Fibonacci level of 0.7190.

 

Monthly Time Frame: The pair remains below the monthly Ichimoku cloud, and appears to be testing the neckline of a long-term Double Top chart pattern.

 

NZD USD Bottomed Out - Monthly Chart Double Top NZD USD Bottomed Out - Monthly Chart Double Top

 

If this Double Top is confirmed, that would make the most recent up-moves from September 2015 to September 2016 a mere correction of the longer and stronger downtrend which started in July 2014.

2- Fundamental Points

The second point of the IDDA suggests looking at the economic and political developments that could impact the currency pair.

 

New Zealand Side: New Zealand’s April trade balance held in positive territory for a second consecutive month, the national statistics bureau reported Wednesday. The merchandise trade balance rose to NZ$578 million in April, from a revised $277 million surplus the month before. That was the highest monthly surplus since 2015.

Backing up to earlier this month, the RBNZ kept the interest rate unchanged at a record low 1.75% beginning of May. The bank also shrugged off the mostly positive economic reports, including the sharp increase in headline Q1 inflation, and decided to maintain its neutral monetary policy bias.

 

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The RBNZ not only maintained its neutral monetary policy bias, it even maintained its projections for the OCR, so the RBNZ still expects no rate hikes until the later half of 2019 at the earliest.

Another thing to look at is the country's inflation. New Zealand’s headline Q1 CPI jumped by 1% quarter-on-quarter, which is the fastest quarterly increase since Q2 2011. Year-on-year, this translates to a 2.2% surge, the strongest annual reading since Q3 2011. Instead of being happy about this, the RBNZ merely downplayed this surge by pointing out that the sharp increase “was mainly due to higher tradables inflation, particularly petrol and food prices” and then saying that “These effects are temporary and may lead to some variability in headline inflation over the year ahead.”

 

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The RBNZ also downgraded its quarterly GDP projections for Q2 2017.

In the latest RBNZ statement, there were also hints that the bank may potentially switch to an easing bias, depending on how scenarios identified by the RBNZ play out.

 

On a more upbeat note, the unemployment rate in New Zealand surprisingly dipped lower in  Q1 2017, as the number of unemployed dropped by 4.4% while those who have jobs rose by 1.2%. Unemployment now sits at 4.9% – the best reading in six months – even as labor force participation rate edged up to an all-time high of 70.6%.

So far the fundamentals of New Zealand economy is giving us a mixed picture.

Coming up: RBNZ Financial Stability Report on Tuesday May 30th

 

US Side:  Strong headlines, weak details on unemployment. Trump's first international trip and signing big deals with the Saudis, while forgetting that Israel is in the Middle East. Meanwhile, he is under investigation by the FBI. While supporters say he is strengthening the US position internationally, the resistance disagrees. The political tensions could overshadow the FOMC Meeting Minutes (3 MAY) coming up on Wednesday at 6 PM GMT.

 

3- Market Sentiment

Market sentiment analysis is the 3rd point of the IDDA. Retail trader data shows 53.8% of traders are net-long NZD USD. In fact, traders have remained net-long since May 12 when NZDUSD traded near 0.68435; price has moved 2.7% higher since then. The number of traders net-long is 11.0% lower than yesterday and 11.8% lower from last week, while the number of traders net-short is 29.9% higher than yesterday and 10.3% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests NZDUSD prices may continue to fall.

On the other hand, traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current NZDUSD price trend may soon reverse higher despite the fact traders remain net-long. 

 

Trading Strategy After NZD USD Bottomed Out

As 4th point of the IDDA, you must calculate your risk tolerance before deciding on which trading strategy is suitable for your portfolio. We normally do not recommend trading without three or more confirmations of a specific direction from technical, fundamental and market sentiment points of view. Join us in our strategy development room by becoming a member of our investing group to learn more.

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Disclaimer: Forex is one of the HIGHEST risk investing instruments there is. If you don't have sufficient risk tolerance to trade forex, you can try investing other online securities.

 

Combining all points of the IDDA, here are Invest Diva's calculations for important approximate levels to keep an eye on:

Support Levels Turning Point Resistance Levels
0.6726 0.70 0.7190
0.6875 0.7117 0.7323

 

 

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