Those who are long on the New Zealand dollar have had quite a relief these past couple of weeks due to the Kiwi’s turnaround. As you can see from its daily chart, the NZDUSD pair has rallied back after marking a new low this year at 0.65618. Looking at my last post regarding the NZD (click here to see my previous post on the same currency), I can see that NZDUSD’s price set-up is very much alike with the NZDJPY’s. In any case, several technical factors point to a likely bearish reversal of the pair. One is that it is currently trekking within a rising wedge pattern. A rising wedge is more or less seen as a bearish pattern as it just represents a temporary correction or a rally in prices. Notice also that the pair is currently having some difficulty moving past 0.6850. Not only was this mark a previous support but it also almost perfectly falls in line with the 38.2% Fibonacci retracement level that I drew. On top of that, conditions are already becoming overbought based on its stochastics. Given these, the pair would likely head down soon. If it does, it could fall back down to 0.6700 or back to its 2010 low. On the flip side, it could hit its next apparent resistance aside from the 50% Fib if and when it clears 0.6850.
The recent rally in the Kiwi was mainly due to the rebound in the US equities market in anticipation of a strong employment figures from today’s Non-farm payrolls (NFP) report. Some profit taking actions during the past several days may have also contributed to the recovery in prices. Currently, the USD and the JPY are weakening against the higher yielding currencies like the NZD on speculation that the US’s payrolls, in May could print some strong numbers, suggesting that the numero uno economy in the world is starting to loosen up. Still, there’s one major data in the form of the ADP non-farm employment estimate for the same period that indicates otherwise. Yesterday’s ADP employment change missed its 68,000 target with only 55,000. Now, if the actual government employment change number also comes in weaker than the projected 521,000, and with the upbeat expectations already priced in, we could be up for a big disappointment which could translate to a sharp drop in prices. By the way, the US’s employment report will be on tap today at 12:30 pm GMT. So stay tune!