NZD/USD In a Correction

By: Mike Kulej

The New Zealand Dollar has been in an uptrend for the last few months in relation to the US Dollar. Since May, it has appreciated from 0.6560 to 0.7390. It had reached this level twice, most recently earlier this week and is now pulling back.

One could argue that this is a double top and the market is now due for a reversal. This might be the case, but more likely, the NZD/USD is now simply correcting before resuming an uptrend. Even the presence of a divergence with the MACD, does not necessarily mean a reversal. The “two touch” of 0.7390 established a strong resistance, breaking which is needed for farther appreciation.

Meanwhile, the correction is under way and the price just touched the 38% Fibonacci retracement level of the most recent upswing of 0.6950 – 0.7390. It could go lower, to the 50% or 62% retracement levels, where candlestick formations should be watched for emergence of possible bullish patterns.

In addition, the main up trendline is another support, where the price could turn back up. However, if it is broken, then chances for a trend reversal to bearish increase significantly.