Pound Testing Resistance Against Kiwi

Alan Penny

1 November 2019

3 min read

UK forex trading news

  • Testing major 2.05 NZD level
  • Forming “W pattern”
  • Easing of Brexit concerns

The British pound has been showing signs of strength against the New Zealand dollar for some time now, as shown on the weekly chart. That being said, the market is struggling to break above the 2.05 NZD level. This is an area that has caused both support and resistance on longer-term charts, so it makes sense that the chart is starting to attract a lot of attention.

Background noise

This pair has a lot of background noise attached to it, as the obvious headlines of Brexit coming out and causing issues with the British pound will continue to be a major problem. However, it looks as if the Brexit situation is at least getting a bit better in the sense that “no-deal Brexit” is probably less likely now. With that, it gives a little bit more strength – or at least comfort – to people who wish to hold the British crown.

On the other side, the New Zealand dollar is highly sensitive to the Asian situation right now, which concerns US-China trade negotiations more than anything else. At this point, the market is very likely to continue to get kicked back and forth due to headline noise coming from both Washington and Beijing. Therefore, this market could move in either direction based on sudden changes in tone, announcements, and the like.

Technical analysis

The technical analysis looks fairly strong as the market is starting to form a larger “W pattern”. This is typically a bottoming pattern, but even if it is not at the bottom of a large downtrend, at the very least you can call it a “short-term double top”.

Either way, if the market breaks above the 2.05 level, that is a bullish sign.

The 50-day EMA is starting to tilt a bit higher and cross above the 200-day EMA, forming a “golden cross” – a strong sign for longer-term traders as well. Ultimately, there are two different things that could be going on from a technical standpoint. There could either be a “W pattern” or simply the top of the consolidation down to the 1.85 level, as it would form a nice rectangle.

The problems between the United States and China are more structural and longer-term than most give it credit for.

If the market does break to the upside, the initial target will be 2.10 NZD, followed by 2.20 above. This doesn’t mean it will happen overnight, but rather as traders continue to feel more comfortable owning the British pound. Certainly, there are some out there who have missed the overall move higher in the British pound.

While most traders will focus on the GBP/USD pair, this could actually be a bit of a “perfect storm” if Brexit goes well, while the US-Chinese trade negotiations continue to falter. At this point, both of those situations are calming down, but the problems between the United States and China are more structural and longer-term than most give it credit for.

With that being the case, this rally would make quite a bit of sense.

Written By
Alan Penny

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