The New Zealand dollar has finally started to breakout against the US dollar, as traders and investors price in the recent RBNZ raising interest rates to increase and possibly more to come.
According to technical analysis is currently in play, the following weeks of subdued price action below the 0.7000 level. A recent falling wedge topside break hints that the NZDUSD pair could be trading significantly higher this quarter.
The Reserve Bank of New Zealand’s Monetary Policy Committee raised its Official Cash Rate from 0.25% to 0.5% during its recent meeting, and with inflation rising, could easily hike again this or next year.
Looking at the fast rise in the NZDUSD pair it would appear that the rate is still being price-in by the market. Such a change of attitudes could quickly lead to an overextension to the upside.
The fact that the RBNZ is cutting back on QE, and raising rates makes the NZDUSD pair a prime candidate for more gain. If the FED fails to deliver in Nover, a clear divergence between the FED and RBNZ could cause the NZDUSD pair to surge much, much higher
According to the ActivTrader market sentiment tool, some 72 percent of traders are bearish towards the NZDUSD pair. As we typically look to fade sentiment biases, this could mean now is time for the NZDUSD pair to rally.
High levels of negative bearish sentiment suggest a classic contrarian sentiment trade-in is the making, and that buying dips is the order of the day.
NZDUSD Short-Term Technical Analysis
The four-hour time frame continues to show that the NZDUSD pair has formed a large head and shoulders pattern, which could suggest that a drop towards the 0.7100 area could be coming
According to the overall size of the bearish pattern bears could sink the pair towards the 0.7090 to 0.7080 price region. I suspect it may be a great buying opportunity.
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NZDUSD Medium-Term Technical Analysis
The daily time frame shows that the pair has broken a large falling wedge pattern. These types of patterns are typically considered to be classic bullish reversal pattern.
According to the overall size of the pattern bulls could be taking the NZDUSD pair to new highs soon, as the size of the pattern implies a further 300 point plus rally towards the 0.7500 area.
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