NZD/USD: Momentum Recovery to Force Short-covering Rally - 13 March 2020

Liquidity started to become an issue across the global financial system, and the US Dollar rallied despite the US Federal Reserve’s panic-cut of 50 basis points. The advance may be short-lived as the US central bank is pressured to deliver a 75 basis point interest cut this month. It announced $1 trillion in liquidity yesterday, in a failed attempt to calm markets. The NZD/USD plunged into its support zone, dating back to January 2009 before recovering above its descending 38.2 Fibonacci Retracement Fan Support Level.

The Force Index, a next-generation technical indicator, followed price action to the downside and is now amid a reversal off of a new 2020 low. A push above its ascending support level, acting as short-term resistance as marked by the green rectangle, is expected to convert its horizontal resistance level back into support. The descending resistance level will pose a significant challenge from where a breakout will spike this technical indicator into positive territory, granting bulls control of the NZD/USD. You can learn more about the Force Index here.

While a renewed push in this currency pair into its support zone located between 0.59943 and 0.60312, as marked by the grey rectangle, cannot be ruled out, the NZD/USD is developing a mild bullish bias. Stability above its 38.2 Fibonacci Retracement Fan Support Level is anticipated to initiate a short-covering rally, boosted by fundamental conditions. The New Zealand economy is heavily dependent on China, which appears to be past its Covid-19 peak and on a slow path to normalization.

An advance from current levels is anticipated to take the NZD/USD into its short-term resistance zone located between 0.62633 and 0.63060, as marked by the red rectangle. The 61.8 Fibonacci Retracement Fan Resistance Level is passing through this zone. A breakout above it will end the bearish chart formation, but more upside will require a fresh catalyst. With the return of quantitative easing by the US Federal Reserve, this currency pair will face long-term upside pressure. You can learn more about a breakout here.

NZD/USD Technical Trading Set-Up - Short-Covering Scenario

  • Long Entry @ 0.61400

  • Take Profit @ 0.63000

  • Stop Loss @ 0.60900

  • Upside Potential: 160 pips

  • Downside Risk: 50 pips

  • Risk/Reward Ratio: 3.20

In case of rejection in the Force Index by its descending resistance level, the NZD/USD is likely to attempt a second push into its support zone. Given the developing fundamental conditions, enforced by technical progress, a breakdown appears unlikely unless a major development unfolds. Forex traders are advised to cautiously consider any sell-off from current levels as a good buying opportunity.

NZD/USD Technical Trading Set-Up - Limited Breakdown Scenario

  • Short Entry @ 0.60600

  • Take Profit @ 0.60000

  • Stop Loss @ 0.60900

  • Downside Potential: 60 pips

  • Upside Risk: 30 pips

  • Risk/Reward Ratio: 2.00

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Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.