NZD/USD has formed what may be construed as bearish flag formation. But after Wednesday’s more hawkish than expected RNBNZ, traders should be prepared for a reversal as much as they are primed for any continuation in the recent downtrend. Also, keep in mind that the Kiwi has found support from the recent paring back in Fed interest rate hike expectations, which may not prove temporary.

Wednesday’s high of 0.65144, was in striking distance of the prior 5 May swing high of 0.65686. Should the latter be breached, that could act as a signal to buyers that the downward trend in NZD/USD may about to be reversed. Likewise, price breezed past the 50% and 61.8% Fibonacci retracement level between the prior swing high and the 12 May swing low of 0.62166. In other words, there is enough reason for bears to be cautious at current levels.  

That said, with price well below its 200-day exponential moving average and given the prevailing uncertainly in financial markets more broadly, bulls may be less apt to push the currency pair higher. Similarly, single Japanese candlesticks in recent days haven’t told much of a story in terms of momentum in either direction. A daily RSI sitting near the 50 mark provide and equally ambiguous signal.

For traders with strong bearish convictions about NZD/USD at these levels, the conservative approach may be to wait for a breach of the lower diagonal support of the flag formation and subsequent successful retest before deciding on sizing and entry of positions. The Kiwi’s sensitivity to global growth and risk appetite, two prevailing market themes at the moment, leave the Kiwi prone to high volatility.       

All communication, messages, media and links distributed on this channel has been prepared by VARIANSE solely for information purposes without regard to any particular user’s investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but VARIANSE does not represent that it is accurate or complete. VARIANSE does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice. The information provided herein is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or sales of any financial instrument. The information contained herein has no regard to the specific investment objects, the financial situation or particular needs of any particular recipient. Relevant and specific professional advice should always be obtained before making any investment decision. It is important to note that past performance is not indicative of future results. VARIANSE is a trading name of VDX Derivatives, authorised and regulated by the Financial Services Commission (FSC) of Mauritius. FSC license number C118023323. VARIANSE is also a trading name of VDX Limited and is authorised and regulated by the Financial Conduct Authority (FCA) in the United Kingdom. FCA register number 802012. This publication is not directed to residents of the United States and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

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