Last week witnessed investor confidence returning to the US Dollar attributed to a modest yet improved economic data. Overall the US economy seems to be chugging along despite the recent GDP first estimate that showed a contraction during the fourth quarter of the year. It is likely that the revised GDP data could indeed be positive.

China’s economy is also positive with the foreign trade surging 26.7% and inflation dropping to 2% on a year on year basis.

Economic data from New Zealand was also bullish with an improved unemployment rate (6.9%, against previous reading of 7.1%). The Kiwi Dollar has been bullish against the greenback since early June 2012, closing a high of 0.84551 in early January this year and re-testing the area at 0.84464 in early February, however falling short of 2012 high of 0.84604. This clearly tells us that a strong upper resistance line is holding up so far. Refer to the (daily) NZDUSD chart below which illustrates the same.

Chart 1: NZDUSD Weekly Technical Analysis (Click to enlarge)

Weekly Technical Analysis, NZDUSD

From Chart 1, we know that the resistance level in the region of 0.84464 – 0.84603 is currently strong. Also recent price action has seen the pair trending downwards. Let’s take a look at the Kiwi/Dollar using median lines along with fibonacci levels to see how this pair will play out during this week.

During Friday’s session, we see that the price moved to a high of 0.83849, this marks a third consecutive lower high. Price closed at 0.83437 on Friday. Referring to the chart below, we have plotted the Andrew’s Median Line and also put in the Fibonacci levels to gain a better understanding of the price. Let’s first look at Median lines and see how price is playing out.

Chart 2: NZDUSD Weekly Technical Analysis (Click to enlarge)

After reaching the median line at 0.84749 (marked with a green tick), price dropped towards the lower MLH and continued trading along this line before reaching the previous level of 0.84749 and dropping back again.

From a Median Line perspective, we have price that is already moved below the lower MLH and is now seen trading near the trigger line. From my perspective, should Monday’s candle close below the trigger line (or below 0.83437) then we can see a drop to either the 76.4% Fib level which is 0.82349 or even further to the 61.8% level at 0.89859.

Let’s take a look at this same chart with some warning lines being drawn towards the Lower MLH as well in order to identify likely areas that price will drop to.

Chart 3: NZDUSD Weekly Technical Analysis (Click to enlarge)

In Chart 3, we have plotted two lower warning lines. While it is unclear as to which point the price is likely to hit, a good practice would be to go short on Tuesday (Feb 12th) if the previous day’s candle closes lower or outside of the trigger line. Then, placing a stop loss at 0.8380 or perhaps a few pips above Friday’s high should be a safe spot.

The red rectangle is a potential area that I plotted where price is likely to go back to retest the trigger line. A conservative trade would to wait until the retest of the trigger line is done between the areas of (low) 0.83437 and (high) 0.83732. If the price is unable to breach closer to the trigger line then an initial take profit can be set to the region of 0.82349 (+/- a couple of pips). Once price moves closer to Take Profit 1, make sure to move the stop loss to 0.83437 (from 0.83880). It could be possible that price could see some retracement around the 76.4% level, but at the same time it is likely that a further drop to the 61.8% region can happen. The best way to gauge this is to look at how price behaves near lower warning line 1.

As pointed out by the arrows, the thicker arrow is the most likely price action that we can see. However, TP1 will have to be closely watched to see how it unfolds, as we have the upward possible move, with price going back to retest the lower warning line and in the event of a breach, retracing as back as to the lower MLH, or price could drop further from the 76.4% level right to 61.8%. Either ways, the NZDUSD chart will be one that should be watched.

To summarize:

NZDUSD Outlook – Bearish
Potential Price target – 0.82956 with a further drop to 0.82349 Fib level