NZD/USD – Make or Break Point Approaching

Dear Traders,

The NZD/USD continued a downward course after a relief rally during May. It now approaching critical levels that will decide its medium-term direction. Today’s post will provide an updated wave analysis and an overview of some fundamental factors that affect this currency pair.

Either End of ZigZag or New Bear Trend

The NZD/USD has continued its slide despite a multi-week long rally during May and early June. As discussed in my previous posts about this pair, the NZD/USD is now approaching a ‘make or break’ point. Either we are currently witnessing the final impulsive swing of a double zigzag that started at the Feb 16 high, or we are seeing the start of a new bear trend.

Scenario 1 (Double ZigZag): For this idea to remain valid price must remain above 0.6780 and create a clear bullish bounce shortly after breaking the low of May 16 (i.e. roughly around 0.68). This idea is shown via the white price path projection.

Scenario 2 (Bear Trend): This idea is shown via the alternative green wave count and price path projection.  A dip below 0.6780 would have major bearish implications and could be the herald of an eventual break below the 2015 low at 0.6150.

Momentum and wave size relationships speak against Scenario 1 and make a better case for a new bear trend. Moreover, the fundamental picture is also looking bleak for the NZD and therefore favors a bearish break. Carry Trading, a major boost for the NZD, has now stopped to a large extent due to fact the FED is now posting higher interest rates than the RBNZ. In addition, global trade uncertainties in conjunction with a topping process of many risky assets are all NZD-negative in their implications.

This means that significantly more factors speak for a bearish continuation than a bullish bounce. In any case, a new low below the May 16 bounce is one the cards regardless.

All the best along your trading journey.

Hubert