Technical analysis NZDUSD

NZDUSD is one of the most interesting pairs as it has a story to tell and clear scenarios for trading. Our analysis focuses mainly on short-term and medium term trading and provides recommendations for trading the pair given the possible scenarios.

NZDUSD

On the short term, the pair is moving in a clear upward trend; it is moving above its 50-MA and an upward trend-line connecting its last two troughs in June and Mid-July. However, it is testing this trend line after its fail to test a major resistance level at 0.7500, which comes from the upper boundary of medium-term upward trading channel and the round number 0.7500. Two possible scenarios are possible at the current moment, one of them is more favorable. The first is to witness a rebound off the current level to rally again and test the last peak near 0.7500. Forex traders see a test on upward trend-lines like the one we have as an opportunity to long the pairs but the entry level differs from one trader to another as It depends on your risk tolerance! If you are risk averse, it would be better to wait till the pair test and rebound of both the upward trend-line and its 50-MA. The long position then would be favorable with a target near the last peak and its major resistance level at 0.7500 and with stop loss level below 0.7180.  If you are risk lover, it would be better to jump in and trade the pair as it hovers above the trend-line.

The second scenario is where the first scenario goes wrong. What if the pair violates the upward trend-line? If you have already longed the pair, you should keep the position as long as the pair hold above the support zone 0.7180-0.7150. Trading below this zone would signal a change in the current short-term trend and traders would be advised to cut losses. In this scenario, the pair would be expected to decline and test the lower boundary of the medium-term trading channel, near support level 0.7000. It is possible to start shorting the pair if it gives a clear signal of violation for the upward trend line. The stop loss level would be above the trend-line, near 0.7270.

The second part in our analysis would be for the medium term traders. The pair is trading in a medium-term upward trading channel that has started since mid-January 2016. In this channel the pair managed to test the upper boundary three times, in June, July and lately the last peak near 0.7500. It also tested the lower boundary once in late may to form a trough near support level 0.6700. Medium-term traders should have closed the long positions in the last test on the upper boundary of the trading channel. If not, they are advised to wait and see the price action near the short-term trend-line. A rebound off this line would give them a better chance to load off their positions on the way to the aforementioned resistance level. In the case of violation of the trend-line. It is advised to close long positions after confirmation. The next weekly chart gives as a better picture of the medium-term outlook of the pair. As shown, on the long-term, the stock is recovering of sharp decline that pushed it down from 0.8800 to 0.6200. the pair retraced part of this sharp decline moving in the aforementioned upward trading channel till it reached the resistance level 0.7500. Even though there are no clear signs that the retracement movement is over, the pair is expected to be trapped between its 50-MA and resistance level 0.7500. Medium-term traders could trade this range on condition that they have tight stop loss levels.

NZDUSD

In the case of breaking this range, the outlook for the pair would change dramatically on the long-term level. The downward breakout of this range would indicate that the long-term down trend is still intact and the pair is heading downward again toward its last bottom near 0.6200. A confirmation for this scenario is to violate support zone 0.6900-0.7000. On the other hand, the upward breakout of the trading channel and resistance level 0.7500 would indicate strength in the pair and would suggest an upcoming rally in the pair that could push it as far as 0.8000 or 0.8000 (on the long-term). Which scenario is more plausible? The first one has more weight for several reasons. First, it is more likely to witness a slow setup after a sharp decline that is why it is more likely to see a sideway or not so steep upward move in the pair before reversing the long-term downward trend. Secondly, the pair is not supported by momentum: RSI is not showing any signs of trend reversal or continuation on the medium-term. Finally, the fact that the pair has approached the upper boundary of the trading channel several times and the selling pressures appear and put more weight on the pair suggest that it is still not the right time to say there is a change in the outlook.

 In short, the pair in the short-term has clear scenarios to trade and act upon: buy on a rebound and cut losses below the trend-line. On the medium-term, it is trading in critical levels and forex traders should pay more attention for price actions near resistance and support levels because any violation would not only signal a change in medium-term trading but on long-term as well.

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