NZD/USD bears looking for a run back to weekly low

NZD/USD is currently trading at 0.6525 and between a range of 0.6523 and 0.6533. The bird has been unable to break the overhead resistance on its first attempt ad has instead been toying with dynamic support and resistance line in choppy price action. More on that below.

Meanwhile, risk appetite at the start of the week failed to juice any more upside in the pair despite US benchmarks making all-time record high closes. Instead, the US dollar was a touch stronger and weighed on the market. 

Bigger picture it looks more like a correction within a downtrend rather than the start of a proper rebound, but it’s not clear-cut, analysts at ANZ bank argued.

The US COVID-19 situation remains bleak and the Fed is dovish. But the RBNZ has its foot to the floor too and is flagging negative rates. Amid some balance, we see more the risk for the NZD as being more tilted to the downside,

the analysts added. 

Looking ahead 

The main focus will be on Federal Reserve Chairman Jerome Powell’s keynote address later this week at the Jackson Hole.

The theme of this year’s Kansas City Fed conference is “Navigating the Decade Ahead: Implications for monetary policy”.

Given the persistent inflation undershoot, the implication of formalising an average inflation target is that policy rates will remain lower for longer.

That could help fuel further equity market gains, anchoring expectations that rates will remain at or below current levels for quite some time while also enhancing the focus on the policy tool kit and unconventional monetary policies (QE, forward guidance),

the analysts at ANZ bank explained. 

NZD/USD levels

Meanwhile, the bird has yet to make up its mind on a trajectory from a technical standpoint in choppy conditions, although a head and shoulders and price below the trend line skews probabilities into the bear's favour.

There is scope to the downside but there is not a lot of room between structures and prospects of a barroom brawl on a test of recent lows.

The risk to reward is limited to 1:2 if a short is taken at market with a stop above the recent highs and head and shoulder's right-hand shoulder, targeting the previous weekly low of 0.6488.

A Fibonacci extension to the -0.272% of the correction of the 19th August is located at 0.6470 for a 1:3 risk to reward.