From the September 01, 2011 issue of Futures Magazine • Subscribe!

Tech talk: Kiwi feels long-term damage

Markets

The NZD/USD pair retraced significantly over the first week in August, falling from an all-time high of 0.8843 to below 0.82 as markets shifted away from higher yielding assets in favor of safety. While the sharp sell-off suggests that a relief rally could occur in the short-term, longer-term technical damage has been done and fundamentals point to further declines in favor of risk-aversion.

Various technical indicators suggest further declines as well, with momentum trending in favor of further weakness. The weekly Relative Strength Index (RSI) is declining sharply, at 53, after having been oversold above 70 during the last half of July. The first week of August yielded a sell signal on the weekly Slow Stochastic oscillator.

As of Aug. 8, the NZD/USD pair had retraced approximately 38.2% of its appreciation from its March 17 low, when the kiwi, among other high yielding assets such as the Australian dollar, sunk to yearly lows following the natural disasters in Japan. The NZD/USD pair easily has broken through its 20- and 50-day moving averages, with the 100-day, at 0.8101, the next significant level of support in the near-term. The 100-day is likely to be broken as the global shift to risk-aversion continues. Should the fundamental picture worsen, the NZD/USD pair likely will break the 50% retracement at 0.7981 before facing critical and perhaps rigorous support at its 200-day moving average of 0.7842.

Christopher Vecchio is a currency analyst at the Forex Capital Markets LLC research desk. He can be reached at cvecchio@dailyfx.com.

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