As my colleague Chris Tedder noted on Monday and earlier today, the New Zealand dollar’s had a tough start to the week.
While some traders (including yours truly) were optimistic that the beleaguered currency may bounce back this week, the onslaught of negative economic data, not to mention the recent political turmoil ahead of next month’s elections, has driven the kiwi to a new 6-month low against the U.S. dollar (NYBOT:DZU14).
While the Kiwi’s neighbor across the Tasman Sea has hardly elicited any excitement over the last few weeks, the AUD/NZD has rallied to its highest level in 9 months on the back of the NZD’s (CME:N6U14) struggles. Now, both bulls and bears are lining up for a big Antipodean battle around the 1.1200 level in AUD/NZD.
As the below chart shows, the AUD/NZD accelerated out of 2014’s bullish channel yesterday, forming a large Bullish Marubozu Candle* in the process. This candlestick pattern shows strong buying pressure throughout the day and foreshadows more strength in the coming days. Sure enough, the pair is trading higher today, but with rates approaching the 61.8% Fibonacci retracement of the Aug. ’13 – Jan. ’14 at 1.1210, bulls may struggle to build on the early week momentum.
Looking to the secondary indicators paints a mixed picture. The 50-day MA recently crossed above the 200-day MA, giving a classic bullish “golden cross” signal. At the same time, the MACD is trending higher well above its signal line and the “0” level, showing strongly bullish momentum, but the RSI has snuck back into overbought territory and is showing a potential bearish divergence at the recent highs, suggesting rates may pull back in the short term.
With the bullish and bearish evidence fairly balanced at this point, the next move will hinge on whether buyers can push the pair above key resistance around 1.1200. If bulls are able to overcome this barrier, AUD/NZD could easily run toward the next level of Fib resistance at 1.1400. Meanwhile, a failure to break above 1.1200 this week would favor a dip back toward the topside of the broken channel at 1.1100, if not the 50-day MA all the way down near 1.0900.
* A Marubozu candle is formed when prices open very near to one extreme of the candle and close very near the other extreme. Marubozu candles represent strong momentum in a given direction.