The New Zealand dollar has fallen rather hard during the trading session on Monday, as we continue to see negativity around it. That being said, it should be noted that it’s not just the New Zealand dollar that is suffering, but it’s also anything against the US dollar. The US dollar strengthening comes on the heels of a hotter than anticipated jobs report on Friday, which suggests that the Federal Reserve will have to remain tight with its monetary policy much longer than a lot of traders had been betting on.
At this point, we are threatening the 200-Day EMA, which of course is an indicator that a lot of people follow. If we were to drop down below the 0.6250 level, then it would confirm a break of that indicator, perhaps sending the market plunging even further. Beyond that, you could also take a look at the recent action as a huge “M pattern”, which could open up the possibility of further pressure from a technical standpoint, perhaps sending the market down toward the 0.59 level.
It does make a certain amount of sense that we could see negativity in the NZD as a Royal Bank of New Zealand has suggested that perhaps it’s getting close to the end of its tightening cycle, or perhaps even getting ready to stop. With that being the case, we anticipate more negativity, and rallies at this point in time would almost certainly be selling opportunities. In fact, we may have just witnessed the absolute end of the uptrend. This will be especially true if we continue to see a lot of fear around the world, because remember that the New Zealand dollar is highly sensitive to risk appetite as it is a commodity currency.
The market had recently pulled back from the 61.8% Fibonacci level, forming a little bit of a “double top”, and it’s difficult to imagine that people will not be paying close attention to that. With that in mind, I do think you need to be very cautious with rallies at this point, and the first signs of exhaustion will probably be jumped on by short-sellers.
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