NZD/USD is expected to extend its downside movement. The pair accelerated on the downside after a downside breakout of its July 19 low around 0.7005 and is likely to test the next support at 0.6940. The declining 20-period and 50-period moving averages are playing resistance roles, which maintains the downside bias. The relative strength index broke has broken below 30.
Following yesterday's 0.3% fall to 0.7025, NZD/USD slumped over 1% to a six-week low of 0.6949 this morning after Reserve Bank of New Zealand Governor Graeme Wheeler hinted at cutting interest rates next month. He said in a statement, "At this stage it seems likely that further policy easing will be required to ensure that future average inflation settles near the middle of the target range.The high exchange rate is adding further pressure to the dairy and manufacturing sectors and, together with weak global inflation, is holding down tradable goods inflation.
To sum up, as long as 0.7040 holds on the upside, the pair is likely to drop to 0.6940 at first and then even to 0.6920.
Recommendation:
The pair is trading below its pivot point. It is likely to trade in a lower range as long as it remains below the pivot point. Short positions are recommended with the first target at 0.6940. A break below this target will move the pair further downwards to 0.6920. The pivot point stands at 0.7040. In case the price moves in the opposite direction and bounces back from the support level, it will move above its pivot point. It is likely to move further to the upside. According to that scenario, long positions are recommended with the first target at 0.7065 and the second one, at 0.7085.
Resistance levels: 0.7065, 0.7085, 0.7125
Support levels: 0.6940, 0.6920, 0.6875
The material has been provided by InstaForex Company - www.instaforex.com