NZD-USD at Crossroads

By: Mike Kulej
Propelled by the sovereign credit crisis in Europe, the US Dollar made strong gains during the last couple of weeks. The EUR-USD pair gets most of the attention, because the Euro is the currency in the countries under duress, but other USD pairs have not fared much better.

One of them is the NZD-USD. After a prolonged rally, the New Zealand Dollar had made a 30-month high of 0.7975, before the current crisis erupted. Since then, the NZD-USD sold off steadily and reached 0.7396 on Tuesday. This happens to be a very important level from a technical point of view, and what happens here could decide the next longer term direction.

At the general 0.7400 price area, this pair has a possible support, provided by a number of factors on the daily chart. The most striking is the long term trendline, which must be broken for the main trend to turn into bearish. Also, the 100 SMA is right here as well. In addition, the most recent low formed at this level (0.7404) and is yet another support. On Tuesday, the NZD-USD arrived at the intersection of all these elements.

Such confluence of factors can provide an extremely strong support here, which should be decided over next 1-2 days. If the NZD-USD breaks through the 0.7400 level on closing bases using daily chart, it could continue lower another 300-400 pips, considering that other indicators (RSI, MACD) are not oversold yet. A bounce would maintain the bullish trend, at least for now.