NZD/USD Turns Lower To Give Back Early Day Gains

NZD/USD extended higher following this week’s open but turned ahead of last week’s high in the Asian session. Comments from Fed member Dudley in the North American session triggered a stronger dollar to renew downside momentum, taking the pair into negative territory for the day.

NZD/USD fell sharply following last week’s Fed meeting but the pair found a bottom at the end of Thursday’s North American session. A recovery since then shows the pair retracing about three-quarters of the Fed-inspired decline prior to turning lower once again in Asian trading today.

While the US Dollar index (DXY) managed to rally back towards last week’s high, which was a two-week high for the index, NZD/USD has only retraced just over half of the recovery from Thursday’s low, showing a slight divergence, and underlying strength in the currency.

Commodity currencies topped the gainer’s list last week as traders showed a preference for the Japanese yen in trading a stronger dollar. The same is seen today as the yen leads the decliner’s list among the majors. Although the commodity currencies were mostly lower versus the greenback at the European close, the declines were capped below a quarter percent.

NZD/USD hinted at a reversal last Thursday after the pair fell below a rising trend channel on a 4-hour chart. Seller’s failed to defend the lower bound of the channel on retests, invalidating the pattern. The focus will be on a horizontal level at 0.7188 to assess if there is some potential for a reversal in trend amidst the recent strength in the greenback.

The level marks resistance from June 6th and had held the pair higher on the 12th and the 15th. The hold of the level on the 15th preserved the succession of higher highs and higher lows seen on a 4-hour chart.

Resistance for the pair falls at 0.7311 which held the pair lower last week. Considering there has been some speculation of a wider dollar turn following last week’s Fed meeting, there is some potential for a marginal breach above last week’s high to eliminate weak hands. For this reason, a sustained break of 0.7311 will be important in assessing a bullish continuation.

NZD/USD 4-Hour Chart

NZDUSD 4H June 18

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.