NZD/USD Rally Capped By 200 DMA Following Trump Speech

NZD/USD extended higher on Wednesday as a press conference held by President-elect Donald Trump elicited a sharp drop in the Dollar. The pair struggled to cross above the 200-period daily moving average and a subsequent decline shows the pair falling back below a horizontal level, highlight the importance of the daily close today.

There was some market expectation for the President-elect to discuss tax reforms or fiscal policy, both of which have become widely expected since the elections. The focus of the press conference, however, was on the handoff of the Trump organization to family members to prevent a conflict of interest. Media questions were concentrated on recent reports that Russia holds incriminating evidence against Trump. There was also a clarification from the President-elect that he hold no relationships with Russia that would prevent a conflict of interest.

The expectation for discussions of measures that would stimulate the US economy triggered a rise in the Dollar ahead of the speech. The US Dollar trade-weighted index (DXY) rose sharply from the European open until the scheduled event but dropped sharply on disappointment over the lack of discussion of economic direction from the Trump administration. The index gave up early day gains and continued to decline towards prior lows for the week, where a bounce has materialized. On a 4-hour chart, a bearish engulfing print has erased gains that date back to Tuesday, the candlestick pattern is likely to keep the index under pressure in the near-term.

The 4-hour chart for NZD/USD will be important following the retreat from highs. There is some potential for a bearish shooting star print if the pair closes below resistance at 0.7045.

The 200-period daily moving average is considered major resistance for the currency pair because of developments through 2016. NZD/USD was the last pair among the majors to cross below the indicator as a sustained breach was not seen until the middle of December, as compared to the EUR/USD where a break was seen in early October. NZD/USD initially broke above the 200 DMA towards the end of the first quarter of 2016 and aside from a brief drop below the moving average in November that was not sustained, the pair traded above the indicator for most of the year.

A horizontal level at 0.7044 marks prior support from October and carries some confluence with a Fibonacci level. The 50% retracement measured from the high posted during the December Fed meeting resides at 0.7050 to fall within close vicinity of the horizontal level. Near-term support for the pair falls at 0.6991 as the level held the pair higher from mid-July until the middle of December.

NZD/USD Daily Chart

NZDUSD Daily Jan 11

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.