Filed Under:  Technical Analysis

New Zealand Dollar slumps following coalition of Labour and NZ First parties

20th October 2017   ·   0 Comments

 

This was probably the worst case scenario for NZD bulls as Winston Peters, who is the leader of the populist New Zealand First party formed a coalition with the Labour Party. The two parties together will be able to make major policy decisions, which will then get backed by the government.

As for the NZD currency, there are several charts that may suggest more pain is coming for the NZD bulls.  But first, let’s start with the NZDUSD. The NZDUSD has been very weak despite the weakness in the USD since the beginning of the year. Which, is not good news for the NZD bulls. A multiyear trend line comes in at .6975 which does look vulnerable, even after the AB=CD completion of the Summer move. It also coincides with the 78% retracement of the May lows to the July highs.

Probably the more interesting chart is the AUDNZD, which has pushed out of a multiyear triangle over today. This was a big event since the triangle has been forming since the end of 2013. There has been a lot of “pent up demand” for a breakout since then. In addition, the shallow retracement of the lows formed this summer to the highs this September were only 38%. Such shallow retracements usually lead to continuation patterns. In this case, higher prices. We have stalled at the Fibonacci confluence of the 127% extensions, but a further rally from here seems likely.

Probably the most controversial chart is the GBPNZD. As most of you know, there are a lot of opinions on what could happen throughout the Brexit negotiation process and how these negotiations can or will affect the GBP. But technically, the GBPNZD has set up a cup and handle pattern, which is a bullish formation. If this pattern completes, the move could take us to the 1.97XX level on a measured move. The 1.9040 level is a big resistance that has capped the move following the Brexit decision, and if broken would also be very bullish technically as well.

The market seems to be leaning towards a weak NZD in the coming weeks or months ahead. Graeme Wheeler, the RBNZ Governor, is probably a happy camper as he has often expressed his concern over the NZD being “too strong.” A weak currency may be exactly what the exporting country of New Zealand needs right now.

Blake Morrow

Forex Analytix

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