AUD/NZD Looking Top Heavy

Technical Sentiment: Neutral

Key Takeaways

• NZD Overseas Trade Index took everyone by surprise with a 0.3% rise vs. consensus of -3.5%;
• Pending Australian news has an overall bearish tone (ballooning Current Account and weaker GDP expected in June), Building Approvals being the only notable exception;
• RBA expected to keep Rates steady at 2.50%.

AUD/NZD hit a major price target at the end of August, promptly switching to consolidation mode for several consecutive days. We expect a break-out as soon as Monday night, Tuesday morning the latest.

 

Technical Analysis

On 19^th August, AUD/NZD broke above a 3-week range resistance, priced at 1.1045, triggering a new bullish wave within its long term uptrend. Buyers quickly aimed at 1.1194, where a year-old support level coupled with 61.8% Fibonacci expansion on the most recent bullish wave turned into a solid resistance cluster. Buying then slowed down to a halt once this target was reached.

Currently trading within a compressed range, identified as multiple inside daily bars between 1.1129 and 1.1190, AUD/NZD is about to break-out in the next trading sessions. A bearish break will be confirmed by a drop and Daily close below 1.1128. Besides bearish expectations from Australia, several technical indicators add additional weigh to this scenario. Stochastic indicates extreme overbought conditions, indicating a temporary top is likely to form in this area. Targets for a break lower should be focused largely on 1.1045, where the uptrend is most likely to resume. A second break-down could lead sellers to pressure AUD/NZD down to 1.0905/24.

On the other hand, a bullish break above 1.1200 will expose 1.1350 within a very short period, followed by yet another consolidation period or a deeper retracement due to extreme overbought conditions.

*********

Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets