By: Mike Kulej
While many currency pairs have been trading in ranges or even erratically lately, the NZD-CHF staged a convincing rally from 0.7187 to 0.7645. It came on a combination of both strength in the Kiwi and weakness in the Franc.
However, this price run up could be overextended. On the intermediate term chart, the rally is taking on a parabolic shape, without any sizeable correction. It is exemplified by a steep price progress, with an additional acceleration very recently.
These types of market moves typically do not have lasting power and this one should be no exception. They often end with a shooting star candlestick pattern, like the one that formed on Monday at the top. We can also see other technical indicators being extremely one sided. The MACD displays an elevated reading, the highest in months, while the RSI is severely overbought, indicating a possible pull back.
One should not view current situation as potential reversal, there is simply not enough evidence for that. Rather, a market correction, within the intermediate trend, is more likely.
Since the price action itself does not provide many clues how far the NZD-CHF could correct (no important highs/lows are present during the rally), the Fibonacci retracement levels can be used as a guide. The nearest one, the 38% level, is at 0.7475, while the 50% is located at 0.7415. Chances are, this pair will test one of them soon.