By: Christopher Lewis
The NZD/USD pair is one of the most risk-sensitive pairs of the majors that the retail trader can get involved with. Many times, when the “risk on” trade comes into play, this pair is actually a better performer than the more popular AUD/USD pair because it isn’t as liquid. The pair will often move much quicker, and run for much longer as well. As a result, it should always be on your radar when the commodity markets are moving, as the New Zealand economy and the high yield of the currency run in tandem as those markets under most circumstances.
The attitude of the markets in general on Tuesday really wasn’t that impressive, and this showed up in many different currency pairs for the session. This pair was particularly interesting as it produced a very clear and bearish candle in the form of a shooting star at the previous resistance level of 0.8250 or so.
Shooting Star – consolidation
The candle does indeed look very bearish. However, the recent action in the market over the last several months suggests that the Kiwi is still loved, and shorting it should be done in moderation as the longer-term trend tends to reappear suddenly. The candle suggests selling, but I believe that the consolidation should hold true, and the braking of the bottom of the Tuesday session will only signal a return to the 0.81 level or so. In other words, this is a short-term signal as a real breakdown seems unlikely.
.png "NZD/USD Daily 3/28/12")
The 0.80 level below is still untested, and I find it hard to believe that it won’t put up a fight. Because of this, I am ready to short this pair but not ready to hold onto any shorts as the 38.2% Fibonacci level at roughly the 0.8050 level should hold as it has over the last couple of weeks. Even if it doesn’t, the level below certainly looks like it would. Longer-term, I would be very interested in buying this pair if it broke the top of the shooting star from Tuesday as it shows a real build in momentum.