NZD/USD Turns Sharply Lower On Broader Dollar Rally

NZD/USD declined on Wednesday to snap a three-day winning streak. The pair is on track to post a bearish engulfing candle on a daily chart to signal a resumption of the broader downtrend. The pair has been weighed by a stronger Dollar today, as the trade-weighted index (DXY) has regained upside momentum.

DXY turned higher in early Asian trading today and has recovered to snap a four-day losing streak. The index will likely print a bullish engulfing candle on a daily chart today to erase gains from the prior two sessions, signaling a potential continuation of the uptrend.

AUD/NZD is seen attacking monthly lows once again. The pair has been trading withing a range for the bulk of the month and fell under pressure once again on Tuesday. The pair trades at 1.0425 and a sustained break below the spike low of 1.0363 set during the US elections would offer a bearish continuation signal.

Out of the United States today, ADP non-farm employment gains improved to 216,000 against the analyst expected gain of 161,000 and a revised 119,000 in the prior reading. The core PCE price index was reported to remain unchanged at 1.7% annually. Recent improvements in inflation have had the Fed optimistically looking at 2% target objectives being met in 2017, in turn creating the potential for a more rapid pace of tightening than previously expected. While today’s flat reading is not likely to impact the expected hike in December, Fed commentary will be important for the 2017 outlook.

The daily engulfing print in NZD/USD combined with developments in DXY offers a clear bearish signal for the pair. Support to the downside, however, remains strong. The first level of interest is seen at 0.7038 as the level references lows from October. As well as horizontal support at the level, the 200-period daily moving average resides within close vicinity to create a confluence. Attempts for a sustained break below the 200 DMA have failed as of late and the pair has traded above the indicator since scaling the moving average at the end of the first quarter. In the event of a break of the indicator, further horizontal support at 0.6991 is seen as critical as it has held the pair higher on several occasions since mid-June. The close proximity of the level to the psychological 0.7000 handle adds to the strength of the level.

NZD/USD 4-Hour Chart

NZDUSD 4H Nov 30

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.