New Zealand dollar continues to grind higher
The New Zealand dollar has been rather noisy as of the last couple of months, especially as we got word out of Wellington that they could possibly be cutting interest rates in the next move. That’s obviously negative for a currency when the central bank is talking about loose monetary policy, but in the current environment that doesn’t exactly make New Zealand any different than most other economies around the world.
Technical set up
Quite often, the best way to trade a market is to simply trade what happens, not what people are saying. Yes, perhaps the Royal Bank of New Zealand will cut rates rather soon, but at this point in time the Federal Reserve is likely to do the same thing as well. When you get a situation like this, instead of worrying about whatever the pundits are saying out there, it’s best to look at the complete technical set up and pay attention to what we are seeing out there overall.
In the New Zealand dollar/US dollar pair, currently it looks as if the 0.67 level is going to offer significant support. You should also pay attention to the fact that the 200 day EMA is flat, which means that we could very well be entering a range of consolidation. Well, when you look at the chart you can see clearly that of course has already been the case. To the upside, the 0.69 level looks to be rather resistive, so we are simply treading water in a 200 PIP range right now.
Towards the bottom
Remember, when you are trading you are simply playing the odds that are laid out in front of you. What I mean by that is that each trade set up has the possibility of either working out or working against you. There are odds involved, and at this point we are closer to the bottom of the consolidation area, which means that there is a lot of demand just below. That of course means that we should continue to see buying pressure on short-term dips.
Looking at the upside, you can see that the 0.69 level above has been massive resistance, and we have seen a significant amount of selling at that pressure point. Remember that markets do tend to consolidate about 80% of the time, so this would just be the simple garden-variety back-and-forth action that you see on a day-to-day basis. With that in mind, it makes sense to start buying the New Zealand dollar as it is in the oversold part of the consolidation.
The main take away
Obviously, there’s no way that I can guarantee that support holds up. However, considering that we are just 50 pips above that support level as I write this article, while simultaneously being 150 pips below resistance, your risk to reward ratio is certainly favoring the upside move. It doesn’t mean it has to work out, but if you take the averages, this looks as if the New Zealand dollar is trying to find its footing and could very well see a little bit of bullish pressure.
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