NZD/USD Technical Setup: Price Action Approaches Key Support

[MongiIG]

Jun 23, 2022 | DailyFX
Richard Snow, Analyst

NZD/USD (KIWI) ANALYSIS

• Worsening US fundamentals highlight a potential reversal in NZD/USD
• NZD/USD price action approaching a key long-term area, multiple scenarios considered and discussed
• Scheduled risk events dominated by US data including final Q1 GDP and PCE data

The NZD/USD pair has been suppressed for a while now but approaches a rather key level of support (0.6200) once again. This presents an interesting dilemma of a possible bounce of breakdown. Chartists will tell you that the more frequently a level is tested and respected, the more likely it is to eventually give way. Thus far, the pair has approached 0.6200 and the 61.8% Fib of the March 2020 major move without continued downside momentum.

Fundamental factors supporting another bounce off the 0.6200 level include China’s supportive monetary policy amid scattered lockdowns and slower growth. Nevertheless, IMF forecast China to recover faster than the US into 2023 which bodes well for the Kiwi as China is new Zealand’s largest trading partner. Looking at the US dollar, we have already seen yields drop and market expectations around the Fed’s terminal rate appears to have peaked last week, around 4%. Concerning earnings projections, slower growth and declining consumer sentiment in the US could result in a softer dollar as recession fears gain momentum. Nearest resistance appears at 0.6395 if we are to witness a rejection of lower prices around key support.

However, if USD data moderates, resulting in lower market expectations around a possible near-term recession, the existing downtrend could continue. In the event of a breakdown of 0.6200, support comes in all the way down at 0.5915 – which corresponds with the 2004 and 2006 major pivot point.

NZD/USD Daily Chart

Source: TradingView, prepared by Richard Snow

The monthly chart highlights the 2020 major move and subsequent Fibonacci levels. The 61.8% Fib appears alongside the long-term pivot point around 0.6200, establishing a rather significant zone of support.

NZD/USD Monthly Chart

Source: TradingView, prepared by Richard Snow