Short term
Trade view / 27 July 2016 at 3:42 GMT

NZDUSD shows significant downside risk

Managing Director / Technical Research Limited
New Zealand

NZDUSD is weaker in afternoon trading, following the Aussie dollar down after Australia’s June quarter inflation numbers were released. See here: Australia's inflation beats forecasts but rate cut still likely.

Analysts are still combing over the figures – the Reserve Bank of Australia bases its monetary policy on a range of inflation measurements – but the conclusion seems to be that the path is clear for a rate cut on August 2. If that happens, the Reserve Bank of New Zealand will definitely also cut on August 11, and perhaps by 50 basis points, in a desperate attempt to dislodge the kiwi dollar from its 0.70 perch. 
Before all that we have a post-meeting statement from the Federal Reserve to digest. However, markets expect a bland commentary giving little away on rate hike intentions.

Management and risk description

From an Elliott Wave perspective it is tenable to interpret a completed “Irregular” corrective structure from the kiwi’s 0.6245 low of last September, with a medium-term selloff toward at least the 0.6660 level underway (refer Daily Chart 1/ below).
From a classical charting stand point, I am monitoring a potential seven-week Head and Shoulders reversal formation (see Daily Chart 2/ below) where a sustained break below Neckline support (currently situated at 0.6950) will establish a downside objective of 0.6580.  


Entry: a break below 0.6950 can be sold.

Stop: 0.7001, initially.

Target: 50% at 0.6675 and 50% at 0.6590.

Time horizon: at least a few weeks.

NZDUSD Daily Chart 1 (click to expand)
NZDUSD daily chart
 Source: ThomsonReuters  

NZDUSD Daily Chart 2 (click to expand)
NZDUSD daily chart
 Source: ThomsonReuters  

NZDUSD Weekly chart (click to expand)
NZDUSD Weekly Chart

Source: ThomsonReuters. Create your own charts with SaxoTrader; click here to learn more 

– Edited by Gayle Bryant

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