The NZD/USD pair gapped lower at the open after the Christmas break on Wednesday. Typically, this would be the type of action that would have me shorting a market as it is very bearish. However, if you look at the marketplace on the whole, you can see that the 0.82 level was simply the beginning of serious support all the way down to the 0.80 handle.
I believe that a lot of what's weighing upon this currency pair is the fact that the fiscal talks in Washington DC continue to drag on. After all, that is a "risk negative" factor in the marketplace, and the Kiwi dollar is without a doubt very risk sensitive. With that being the case, I expected this pair will continue to be anchored a bit as long as we have no real solution in that particular debacle.
Gap
The gap would normally signal a lot of weakness, but I think not only will this gap get filled, but it also gets blown past like it wasn't even there. I don't know that it will happen right now, but eventually the Congress and President will have to come together with some type of solution. When that happens, there's a good chance that the markets rally and all risk assets gain as well. That's the case, the New Zealand dollar should do quite well.
In fact, I am bullish of this currency pair over the long run, and think that eventually the drama will allow us to start buying the Kiwi dollar again. A move above the gap on a daily close would be a good enough signal for me to start buying again. Also, I believe that supportive action below here and above the 0.80 handle will also act as a buying signal in the near-term.
As for selling, I am going to avoid doing that even though it is technically looking a bit weak at the moment. The reason for this is that we could have an announcement out of Washington DC that could send this pair ripping 200 pips to the upside in the blink of an eye. This is not the kind of "rip your face off" rally that I would be betting against.