AUD/NZD at key technical juncture ahead of NZ GDP

The AUD/NZD currency pair is looking very interesting from a technical point of view. After it finally broke above sturdy resistance of 1.1035 in mid-August, the currency cross went on to achieve a high of 1.1294 before pulling back sharply from there. But I think this latest pullback was caused primarily by longs taking profit, for price had already reached an exhaustion point – i.e. the 161.8% Fibonacci extension level of the last significant downswing (from point A to B on the chart). Although on the way down some important levels have been taken out, the 1.1035 level has (for now at least) turned into support. Significantly, this level also corresponds with the shallow 38.2% Fibonacci retracement of the last upswing (from point B to C), making it a major support area.

With the New Zealand second quarter GDP due at 11:45 BST (6:45 EDT), there is thus a chance for price to move sharply in either direction, especially if the actual number deviates significantly from the expected +0.6% reading. For the bulls, the first level of resistance to challenge comes in at 1.1125, followed by 1.1200. These levels were formerly support and resistance, with the former also corresponding with the 38.2% Fibonacci level of the down move from point C (not plotted on the chart – in order to keep things tidy). The bears meanwhile will be watching the 50-day SMA at 1.1000 ahead of the 50% retracement level of the BC swing at 1.0955.

The key takeaway point is that a closing break below 1.1035 would technically end the bullish trend, which may lead to the resumption of the long-term downward trend. But for now, the bullish trend remains intact, supported further by the recent crossing of the 50-day SMA above the 200 which created the so-called “Golden Cross” – a bullish signal.

Figure 1:

Source: FOREX.com.