NZDUSD Corrective Wave (Mar 2, 2015)

This lines up with a broken support level and is close to the .7600 major psychological handle.

If this area continues to hold as resistance, NZDUSD could move back to its previous lows around the .7200 major psychological level eventually. Stochastic is moving down from the overbought area, indicating a pickup in selling pressure and a potential move lower.

However, an upside break from the .7600 handle might mean that the pair is in for more gains and a potential uptrend. This could lead to a move up to the next resistance level at the .7900 major psychological resistance.

The path of least resistance is to the upside, as the Fed recently downplayed its hawkish stance and indicated that a rate hike isn’t guaranteed for June yet. Meanwhile, data from New Zealand has consistently shown improvements, particularly in the dairy sector.

Event risks for this trade setup include the New Zealand dairy auction, which might indicate another gain in prices. If so, NZDUSD could be in for a longer-term climb as traders predict a strong rebound in the country’s largest trade sector. Another catalyst is the NFP report up for release at the end of the week.

If the US is able to keep up its impressive streak of hiring gains, NZDUSD could resume its drop as traders renew speculations for Fed tightening sometime this year. If the jobless rate continues to improve, the US central bank could alter its forward guidance to indicate that it is moving closer to hiking interest rates.

Shorting at market with a stop above the .7900 handle and aiming for the .7200 mark could work as a swing trade, depending on the outcome of this week’s events.

By Kate Curtis from Trader's Way