The NZDUSD has shown a bullish reversal since early August, supported by key technical indicators, suggesting potential further appreciation. However, fundamental challenges, including New Zealand's declining retail sales and economic contraction risks, could influence market sentiment.
Traders should closely monitor the currency pair in anticipation of important economic data, market sentiment, and technical insights that could impact currency valuations.
Overview
The NZDUSD has shown a bullish reversal since early August, supported by key technical indicators, suggesting potential further appreciation. However, fundamental challenges, including New Zealand's declining retail sales and economic contraction risks, could influence market sentiment.
Traders should closely monitor the currency pair in anticipation of important economic data, market sentiment, and technical insights that could impact currency valuations.
Key Economic Events
Friday 01:45 (GMT+3) - New Zealand: Retail Sales q/q (NZD)
Friday 15:30 (GMT+3) - Canada: Retail Sales m/m (CAD)
Friday 17:00 (GMT+3) - USA: New Home Sales (USD)
Technical Analysis
The NZDUSD exchange rate has been on an upward trajectory since August 5, when prices bounced off the lows of 0.58497. Subsequently, the exchange rate between New Zealand and the US Dollar emerged above the 50-period Exponential Moving Average, forming a bullish chart reversal pattern known in technical analysis as a failure swing. Specifically, the trough at 0.59743 failed to move lower than the previous trough, and instead, prices moved above the peak of 0.60837, thus a failure swing. The NZDUSD "walked" the bands and exceeded the 161.8% Fibonacci Extension of 0.61513 paving the way for further appreciation. The 50-period Exponential Moving Average, the Momentum oscillator, and the Relative Strength Index (RSI) support the bullish bias for the NZDUSD. Specifically, prices are trading above the EMA line; the Momentum registers values above the 100 baseline, and finally, the RSI is above 50.
Potential Upside Targets
If the bulls keep control of the market, traders may consider the following four potential upside targets:
0.61782: The first price target is 0.61782, which aligns with the daily high marked on August 21.
0.62219: The second price target is seen at 0.62219, representing a peak established on June 12.
0.62607: An additional resistance level is determined at 0.62607, corresponding to the 261.8% Fibonacci Extension drawn from the swing high of 0.60837 down to the swing low of 0.59743.
0.64377: The fourth resistance is established at 0.64377, representing the 423.6% Fibonacci Extension drawn from the swing high of 0.60837 down to the swing low of 0.59743.
Potential Downside Targets
If the bears manage to take control of the market, traders may find potential opportunities in the following four downside targets:
0.60837: The initial level of support is identified at 0.60837, corresponding to the swing high established on August 14.
0.60371: The second downside target is expected to be 0.60371, corresponding to the (PP) Pivot Point calculated using the weekly standard method.
0.59743: The third line of support is estimated at 0.59743, which aligns with the trough marked on August 15.
0.58497: An additional support level is estimated at 0.58497, representing a daily low recorded on August 5.
Fundamentals
New Zealand's retail sales fell 1.2% in the second quarter, signaling a potential third recession in less than two years. Sales volumes per capita hit their lowest level since 2016, excluding the pandemic lockdown period. The decline, deeper than expected, reflects the impact of tight monetary policy and rising costs on consumer spending. While pressures from high interest rates and prices are easing, concerns about job security and income growth are emerging. The Reserve Bank of New Zealand recently cut the cash rate, anticipating further economic contraction in the near term.
Conclusion
In conclusion, while the NZDUSD has shown a bullish reversal supported by technical indicators, the broader economic landscape presents challenges that could impact this momentum. New Zealand's declining retail sales and potential economic contraction highlight underlying risks. As the market approaches key economic data releases, traders should remain vigilant, balancing technical insights with evolving fundamental conditions to navigate potential shifts in the currency pair's direction.