The NZDUSD pair has been dropping notably over previous months and it has reached levels unseen since January 2016. However, it is thought that bulls might soon re-appear as the bearish momentum is becoming exhausted and the pair has failed to drop to new lows, despite extreme short positions.
Judging from the recent CFTC report, the New Zealand Dollar is the most oversold currency ever, which may lead to a sharp move in the opposite direction when investors start closing their short positions. This might be expected to happen soon and, therefore we are turning slightly bullish on the antipodean currency.
Additionally, the same picture is repeated when it comes to US bonds, where extreme short positions have accumulated over previous months. These shorts will most likely be covered as well, which could lead to a notable decline in US yields, especially if US stocks continue to drop. This event might be negative for the US Dollar, which fails to rally, despite higher yields and records long positioning.
We therefore think that as the NZD short unwinds, so will the USD longs, which could lead to a strong rally when it comes to the NZDUSD pair.
Technically speaking, there is a bigger bullish divergence between the RSI indicator and the price, which could help the bulls push the price higher.
The NZDUSD pair is now trading in the bearish channel, but it looks ready to breach above the upper line. The first target for the long position could be at 0.67, although the pair will probably fight a bit at the 100-day moving average, slightly below this level. If this resistance is taken out, the Kiwi could appreciate further toward the 0.6850 level. This might occur over the next several weeks. Stop loss might be well placed below 0.64350.
This article was written by Peter Bukov, one of TeleTrade’s leading analysts.