NZD/USD breaks key Fibonacci support area, paves way for more losses

The NZD/USD’s downward move continues and today it has dropped to its lowest level since early February. After spending several days consolidating around 0.8125/35, which is a key Fibonacci support area, the Kiwi seems like it is ready to head further south. At the time of this writing the currency pair was just shy of reaching the February low at 0.8050. While a short-term bounce here is possible, say as a result of profit-taking, the recent consolidation following a strong downward move suggests the bulk of the profit-taking phase may already have taken place. If so, price could break that 0.8050 support level with relative ease, which could lead to follow-up technical selling i.e. stop loss orders being triggered and/or fresh selling takes place.

The next target on the way down is 0.7925/30 which ties in with the 78.6% Fibonacci retracement level of the upswing from the 2013 low point (see figure 1, below). If the NZDUSD were to get there, it would represent a drop in excess of 120 pips. That is quite a dramatic drop and may require the help of the fundamentals. Luckily, there is some New Zealand trade data due at 23:45 BST tonight. The country’s trade deficit is expected to have widened to 1.125 billion in August from 0.692bn the month before, mainly as a result of weaker commodity prices. If the actual number deviates significantly from this expected figure then we could see an equally sharp move.

Looking at the week chart now (figure 2), price seems to have formed a major double top pattern at 0.8800, confirmed by the recent break of the long-term upward trend. These technical developments suggest 0.8050 or indeed 0.7925/30 (78.6% Fib level) could be temporary obstacles en route to 0.7700, the 2013 low.