NZD/USD Continues To Struggle At Resistance From June High, NZ Quarterly CPI Up Next

NZD/USD dropped sharply lower from resistance shortly ahead of the European close, posting a bearish engulfing candle in the process on an hourly chart that has wiped out gains from the prior four candles.

The Kiwi dollar was noticeably weak last week when compared to the major commodity currencies and especially when compared to the Australian dollar.

The Kiwi’s antipodean counterpart closed at the highest in two years on a weekly chart and broke to new highs for the year on Friday. NZD/USD meanwhile has not been able to make a sustained break above highs posted two weeks ago.

Resistance at 0.7346 marks the June high and has held the pair lower on a daily chart over the past three sessions. The pair managed to print a 4-hour candle close above the level following weak US data on Friday but gains were not sustained.

NZD/USD made another attempt shortly after this week’s open and briefly traded above the level prior to reversing lower. Another test shortly ahead of the European close has resulted in a turn that accompanies some downside momentum.

The focus to the downside is on support at 0.7311. The level marks the January monthly close and the pair has held above since it broke higher last Thursday. A sustained break of the level would tend to accompany a shift in the near-term bullish bias.

A clear break, either of support or resistance, is likely to materialize shortly after the North American close as CPI data is scheduled for release. Statistics New Zealand will release figures for the second quarter at 18:45 EST and analyst are expecting the figures to come in softer than the prior quarter. The estimate is for a rise of 0.2% after a gain of 1.0% in the first quarter.

The latest COT report recorded an increase in the net long New Zealand dollar position from 29,133 to 31,905 contracts to surpass the prior high of 30,808 contracts set in April 2013. It was the eighth consecutive week of improving bullish sentiment for the currency.

While net long is considered at an extreme, the size of the position is at a multi-decade high, showing clear bullish market sentiment towards the currency.

NZD/USD 4-Hour Chart

NZDUSD 4H July 17

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.