By: Mike Kulej
The New Zealand dollar has been surprisingly strong recently. After lagging behind the other commodity currencies, the NZD surged forward during the past two weeks, appreciating broadly. In case of the NZD/USD, this rally reached 0.8262, which is a new all time high for this pair.
At this point, the price appears to be overextended to the upside. Coming so soon after the previous major upswing from 0.7108 to 0.8120, this bullish leg could be a little too high, too fast, as hinted by some technical indicators, which are not rising in line with the price.
The MACD and the RSI indicators are good examples. They have not exceeded their respective previous high levels, as the price just did. This means divergence in both of them, a warning sign that the trend could be running into trouble. Not necessarily a reversal, for that we need more evidence, but a correction of some magnitude.
Just how big of a correction is difficult to estimate. However, Fibonacci retracement levels tend to provide reasonable objectives. Most of the time corrections reach at least one of the main levels – 38%, 50% or 62%. In case of the NZD/USD that means 0.8070, 0.8010 or 0.7950 respectively, with 0.8010 probably the most realistic, because it also converges with past resistance of 0.8000.