Sell NZD/USD at 0.6700. Stop at 0.6850 and target at 0.6450.
Technical view is that this pair may have reached a high and could be about to turn lower.
With US-Sino tensions and global coronavirus cases both rising, investors are likely to favour the safe haven US dollar over the New Zealand dollar.
Price had made a higher high on the 18 September but has been unable to sustain above previous high of 0.6756 from 31 December 2019. As a result, price has declined to 0.6510. A recent rally has moved price higher to 0.6704 but we think this rally could be a corrective rally and price is poised to move lower soon.
When price made a high of 0.6798 on 18 September, it was in the form of a Rising Wedge chart pattern. This is usually a reversal chart pattern which hints of a possible price top and a decline back to the start of the rally. On the weekly chart, there were divergence warnings given by the MACD as well as the Stochastic indicators. Both momentum indicators are hinting of a price high and a possible reversal in trend. Price is currently at the top of a trending channel at 0.6700 and if price is unable to move above this channel, it is likely to decline to the lower trend channel line at 0.6580. A break of this trend channel is likely to send price to our target at 0.6450.
Stochastic is close to the overbought zone and we could be about to see a bearish crossover as well. This is a hint of a possible decline in price in the near future. While price had moved up from the recent low of 0.6510, MACD is not showing the kind of strength we expect of a good rally. This is another hint of a possible price decline in the near future.
Global coronavirus is on the rise again. In many parts of Europe as well as United States, we are seeing higher number of cases than we saw at the start of the coronavirus pandemic back in March 2020. This coronavirus pandemic, with no vaccine in sight at the moment, is likely to continue for a much longer time and is likely to drag down the global economy. It could even send the global economy into recession again! This is likely to send investors into the safe haven US dollar.
US-Sino relationship has not been good for the past 2 years since Trump started imposing trade tariffs on Chinese imports into the United States. Things could have gotten worse with an impending deal on US weapons to Taiwan. China had reacted angrily to the news and has imposed sanctions on 3 US firms that are selling arms to Taiwan. Could this lead to more sanctions on Huawei or Tik Tok? This is likely to increase demand for safe haven US dollar and decrease demand for riskier currencies like the New Zealand dollar.