NZD/USD bulls need to be on guard at this critical area of resistance

  • NZD/USD meets a critical resistance confluence area, bulls need to be vigilant.
  • The US dollar has stepped into a demand zone which could ignite the next bullish wave and bearish trend in the Kiwi. 

NZD/USD is trading at 0.6616 between a low of 0.6569 and a high of 0.6626, some 0.5% higher on the session. 

NZD/USD has had a good run of late, recovering a notable chunk of the mid-September sell-off from 0.6511 to the aforementioned high for today. 

However, the US dollar has been in the driving seat, either steering its own downside or navigating the upside. 

One way or the other, the Kiwi has played second fiddle to the more dominate dollar bloc theme pertaining to the US economy and elections as well as the rampant spread of COVID throughout Europe.  

Meanwhile, analysts at ANZ bank explained that the local drivers of the NZD are well-known: 

''Very easy monetary policy and the promise of more to come, low and flat yield curves, but a gold standard COVID-19 response and commodity prices holding up. 
Against that, we have election uncertainty in both countries. All told, we expect continued trading around our central forecast of 0.65 for the next few quarters.

We are more neutral on the NZD as a more active RBNZ remains focussed on its level, so we are bullish on the AUD/NZD cross. ''

Staying with the dollar, there are indeed arguments for both sides of the story.

On one hand, there are plenty of risks that could create demand for the greenback once again, despite there being huge amounts of central bank liquidity since

March's intervention from the Federal Reserve to free-up swap-lines during the shortage crisis. 

However, the US Presidential Elections is going to be problematic for the dollar bulls if the dollar's track record of weakness into the election is something to go by. 

For the FX market, analysts at ANZ, however, explained that rather than the outcome of the presidential race itself, ''we think the important factor is how aligned the houses will be and how easy it will be for legislation, particularly around fiscal spending, to be passed.

''On this front, the analysts said that the odds don’t look great for the USD, ''with both of the most likely scenarios likely to lead to USD weakness regardless of who wins the presidency.''

NZD/USD technical analysis

Month/quarter-end fixing and rebalancing flows make for a complicated mix for the forex space, but the path of the US dollar has stayed consistent within a 5-wave technical pattern:

If this plays out, then the dollar bloc weakness will weigh on the kiwi. 

However, when looking to the NZD/USD chart, there are bullish conditions prevailing which are confirming the following analysis from yesterday:

NZD/USD Price Analysis: Bulls set on at least a 38.2% Fibonacci retracement

On the other hand, the resistance could prove a tough nut to crack and bulls would be prudent to sit on the sidelines and wait for a break of the resistance for confirmation that there is more to come in this current correction.

After all, a 38.2% Fibonacci retracement meeting with resistance is significant and sufficient for the start of a potential fresh impulse to the downside, in sequence to a 5th-wave to the upside in the DXY.

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