NZD/USD sending mixed signals

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.