NZD/USD consolidates around 0.7050 having broken to the downside of bullish trend channel

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  • NZD/USD has moved sideways since US jobs data and is consolidating around the 0.7050 mark.
  • The pair recently broke to the downside of a medium-term upwards trend channel, implying further choppy trade may lay ahead.

NZD/USD has been moving sideways in recent trade, with the price action swinging either side of the 0.7050 level. At present, the pair trades with losses of around 30 pips on the day, or 0.4%.

NZD props up the G10 performance table

No specific news or themes are weighing on NZD today. Rather, it seems that following a prolonged period of outperformance over the last month vs many of its other major G10 counterparts, NZD is finally undergoing some profit-taking, which has taken the wind out of its sails.

NZD lost some momentum during the Friday Asia session in tandem with AUD following soft Australian retail sales data. Meanwhile, US jobs data does not seem to have had a lasting reaction on the pair, which trades pretty much bang on its pre-data levels at just under 0.7050.

HSBC spot FX trader Brent Donnelly notes “that the high Sharpe of the (recent) rally and the prolonged, grinding nature of the move tends to mean all the short positions have been squeezed out by the time it breaks down”. That might mean the door is open for fresh shorts to pile in.

Moreover, Brent posits that more QE from the RBNZ might lay ahead; “NZD: You can make the argument that since the RBNZ is missing on the inflation mandate but getting lambasted for juicing the housing market, foreign bond buying might be a nice way for them to ease in early 2021 without further stoking homebuyer animal spirits”. Such a move by the bank does not seem to be priced into NZD right now.

NZD/USD breaks bullish trend channel to the downside

NZD/USD has recently broken to the downside of a bullish trend channel, implying that further downside may lay ahead. For reference, to the upside, this bullish trend channel links the 16, 18 and 24 November and 2 and 3 December highs and to the downside, the bullish trend channel links the 13, 19, 23 and 30 November and 2 and 3 December lows.

NZD/USD four hour chart

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