Key Points:
- Two key patterns are nearing their ends.
- Near-term consolidation looks likely.
- A breakout could be on the horizon.
A number of chart patterns are all nearing their endgame for the Kiwi Dollar which could mean that we have some interesting trading ahead. Notably, we could see both some decent buying and selling pressure before the month is done and, following this, we could even have a change in the long-term trend.
First and foremost, the two key patterns influencing the NZD at the moment are the long-term ABC wave the more recent falling wedge structure. Combined, they indicate that we can expect to see the pair move higher in the immediate future before reversing once again to retest the bottom of the wedge and the long-term declining trend line. Importantly, such a movement would be in line with a number of other technical readings, including the Parabolic SAR and EMA bias.
Nevertheless, this narrowing price action could really just be the start of our story and the real trading opportunity looks as though it is going to come in the wake of the wedge’s completion. Specifically, the ending of both an ABC wave and a falling wedge around the same time should mean that we have a bullish breakout on our hands which could reverse the long-term trend and usher in another tranche of gains for the embattled Kiwi Dollar.
If this occurs, gains are likely to be substantial, potentially extending all the way back to last year’s highs. Of course, this would largely be in line with much of the fundamental bias which is becoming bullish given the general recovery of dairy prices and the plunging unemployment rate in NZ. Both of these factors are likely to see inflation rise moving forward which could put pressure on the RBNZ to re-evaluate its historically low interest rates.
Regardless, in the near-term, we are forecasting a modest uptick in buying pressure that should be capped around the 0.6910 mark by the 38.2% Fibonacci level and the ABC wave. The following rebound is also worth taking into consideration as it could be this year’s low should the aforementioned breakout take place.
