The NZD/USD has rallied significantly during the session on Tuesday as the CPI never came out to 7.1% year-over-year in the United States, prompting some traders to suspect that the Federal Reserve is getting closer to slowing down its monetary tightening policy. This of course is complete nonsense, and we have already seen a bit of the rally for the day selloff.
The size of the candlestick does suggest a little bit of bullish pressure, and we are obviously at an area where a lot of interest would be paid. After all, 0.65 is a large, round, psychologically significant figure, and an area that we have seen resistance and support at previously. With that being the case, it is an area where you would expect to see sellers come back in, so I think the Federal Reserve meeting on Wednesday is going to be paramount as to where we go next.
The next Couple of Days Should be Volatile
It’s probably worth noting that Jerome Powell will try to not be so dovish sounding, but at the end of the day he tends to screw up his speeches. Anytime he steps off script, it almost always goes horribly wrong. After all, the market is trying to find any excuse whatsoever to go “risk on”, as that is the normal characteristic of the market. Keep in mind that the New Zealand dollar is most certainly a “risk on currency”, so you also must pay attention to it through that prism.
I believe now we are at a “make it or break it” scenario, so if we break down below the bottom of the candlestick for the session on Tuesday after the Federal Reserve meeting, that tells me that we could very well see a continuation of New Zealand dollar selling, or perhaps even more importantly: US dollar buying. Remember, the US dollar tends to move in the same direction throughout the Forex world, so if we suddenly have a rush toward the greenback, the New Zealand dollar will not be immune to moves in that market. On the other hand, if we see the US dollar selloff, the New Zealand dollar may break out quite drastically and go reaching toward the 0.68 level, possibly even the 0.70 level after that. Ultimately, the next couple of days should be volatile.
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