Since February of 2008 the New Zealand Dollar dropped in a virtual free-fall against it’s U.S. counterpart by as much as 40%. The trend saw the pair hit resistance, as marked by the dotted yellow line, on multiple occasions. But the trend completely broke on the day that the Federal Reserve formally shifted its policy stance towards quantitative easing (Mar. 18) and initiated the purchases of $1.25 trillion in collaterized securities.
The news almost instantly saw money being shifted away from bonds and towards commodities as fears of inflation took hold of investor sentiment. As such, the Kiwi rallied by as much as 22% from its low in early March because the currency has had, and currently has, a high correlation with commodity prices.
[B]Daily Chart of NZD/USD[/B]
Now the pair lays at a critical juncture of consolidation. On the daily-chart the currency lays near resistance. On a 30-minute chart the pair rests near support. The latter shows the support level lying at 0.5735 (green) with resistance at 0.5900 (red). A short-term trader might consider going long at the identified support and exiting at the given resistance.
However, the pair could begin to sell off at the top of this identified range as it also coincides with the longer-term level of potential selling pressure.
Another option would be to simply wait for a breakout to the upside or for the pair to retrace from the identified top. But fundamentally speaking, the trend continues to be to the upside and a shorting trade may find necessary levels of danger.
[B]30-Minute Chart of NZD/USD[/B]
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Questions? Comments? Email Luis at lgil at fxcm dot com .[/I]