NZD/USD: A near-term downside correction looms – DBS Bank

NZD/USD has staged a near-term rally from late August’s 0.6805 lows to trade to a 0.7170 high, off a bullish inverse head-and-shoulders pattern. The rally has driven NZD positioning to bloated readings, making it susceptible to a correction lower. 

Hawkish RBNZ to underpin NZD unless the breaks under 100-week moving average at 0.6927 are sustained

“Bloated positioning should equate to the recent rally higher being susceptible to a correction lower. Yesterday’s push higher has moved into a 0.7173 Fibonacci marker zone as well, and is struggling at a trendline resistance; accompanied by a lofty read on the technical indicator.”

“To absolutely turn the tables on NZD would require a 0.6798 breach as well as a lunge under the 100-week moving average at 0.6726. Unless there are sustained larger downside breaks, it is prudent not to overstay short positions given the RBNZ hawkish policy settings.”