NZD/USD Technical Analysis: Kiwi Dollar Rally Belies Downtrend

NZD/USD Technical ANALYSIS: BEARISH

• New Zealand Dollar rebounds, may have scope to prolong recovery
• Retail trader sentiment studies warn selling pressure may be ebbing
• Long-term chart setup paints gains as corrective, trend as bearish

The New Zealand Dollar launched a spirited recovery against its US counterpart after finding support at a three-month low just under the 0.64 figure. Prices have edged past the midline of the falling channel guiding them lower since the beginning of the year, hinting that a challenge of the upper boundary may be next.

To manage that, buyers will first need to sustain a daily close above support-turned-resistance in the 0.6482-96 area. Securing a foothold above the channel top thereafter would neutralize near-term selling pressure and put structural resistance from July 2017 back in play.

NZD/USD daily chart created using TradingView

Recent gains notwithstanding, the longer-term setup appears to project a bearish bias. January saw prices recoil on a retest of support-turned-resistance that guided nearly two decades of gains before being broken last year. A bearish Dark Cloud Cover candlestick pattern warns steeper losses to follow.

NZD/USD monthly chart created using TradingView

NZD/USD TRADER SENTIMENT

Retail trader data shows 61.15% of traders are net-long with the ratio of traders long to short at 1.57 to 1. The number of traders net-long is 18.85% lower than yesterday and 15.84% lower from last week, while the number of traders net-short is 16.13% higher than yesterday and 5.26% lower from last week.

IG Client Sentiment(IGCS) is typically used as a contrarian indicator, soretail traders being net-long suggests NZD/USD may continue to fall. However,positioning is less net-long than yesterday and compared with a week ago.This warns that prices may reverse higher.

See the full IGCS sentiment report here.

NZD/USD TRADING RESOURCES:

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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