The Kiwi is back: after a terrible year 2008 where it lost 40% of its value against the US Dollar (between points A and B on the weekly chart), it has rebounded during the last 3 months to reach a recent high at 0.6595 in early June.
The huge decline of the New Zealand dollar started in March last year after it had posted a historical high against the Greenback at 0.8213. It was the time when the US Dollar was under pressure across the board.
Several indications argue now for a correction. The currency pair was quoting 0.4890 in early March rose by 35% in just 3 months, which is quite fast and sharp on the FX markets. As a result, the weekly indicators have reached high levels and suggest a technical correction. The Commodity Channel Index (CCI) has already started curving downward as the price action is losing its bullish momentum. The Relative Momentum Index (RMI) has entered its overbought area.
Most important, the price action has peaked on a significant resistance level. Indeed, it failed to break above the 50% Fibonacci retracement level of the decline occurred last year between points A and B.
On the daily chart, we also notice that the 50% retracement ratio also corresponds to a previous low posted in September 2008 (point D). In early June, the MACD has reached historical high value, therefore the upside was limited and the risk has mechanically shifted to the downside.
As the price action has been consolidating between 0.615 and 0.65 during the month of June, the MACD curved downward and crossed below its moving average: that’s bearish.
That’s why we expect a further correction, as both weekly and daily technical indicators go in the same way. Actually the currency pair already corrected to the 38.2% Fibonacci level where it found some intermediary support (point E). The next target could be then the level of 0.57, which corresponds to the first 23.6% ratio.
Good investing,
Gabriel
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