Greenback Strength Triggers NZD/USD Sell-off

Technical Sentiment: Bearish

Key Takeaways

• Personal Spending down, but Chicago PMI and Revised UoM Consumer Sentiment boosted the USD on Friday;
• NZD/USD sold-off quickly starting at 0.7879, breaking a support trendline quickly afterwards;
• Traders are now targeting 0.7710, a target that is likely to be hit early next week.

Steady grinds higher followed by extremely fast sell-offs has been NZD/USD distinguished mark in recent weeks. Based on today’s technical landscape, confirmed by fundamental triggers, the pair is pursuing a fresh lower low.

Technical Analysis

Similarly with AUD/USD, NZD/USD price action has been quite tricky in recent weeks. Although U.S. economic recovery is undeniable and greenback strength dominates all around, traders preferred a zig-zag approach, baiting buyers on several occasions only to lead them to the slaughterhouse. After two identical repeats of the same event, buyers refused to be fooled for a third consecutive time. On our 4H chart, NZD/USD couldn’t correct higher before selling pressure exploded.

Spot is currently trading around 0.7785 in the early hours of U.S. trading. A large bearish engulfing bar has formed on 4H and a continuation below 0.7766 could lead to the same pattern forming on Daily as well.

0.7700/10 represents the main area of attraction for sellers, marked by 29^th September and 6^th October double lows. Stop losses from short positions will begin to accumulate just above today’s high, at approximately 0.7880. Only a rally above this level could trigger a bullish reversal, however this appears unlikely at this point.

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Prepared by Alex, Currency Strategist at Capital Trust Markets