NZD/USD: New Zealand dollar downtrend may accelerate on long bets

The New Zealand dollar may fall against the US dollar on rising net-long bets as NZD/USD sits on support. Positive RSI divergence offers an upside argument.

New Zealand dollar Source: Bloomberg

New Zealand dollar IG client sentiment talking points

  • New Zealand dollar may fall on rising net-long bets
  • Positive RSI divergence does offer a counterargument
  • Keep an eye on NZD 2015 lows, falling resistance

NZD/USD IG client sentiment outlook - bearish

The New Zealand dollar could succumb to selling pressure, extending its downtrend against the US dollar amid rising net-long interest. Since 16 September, we have seen the number of NZD/USD traders who are net long increase from about 53% to about 79%. This is as of the latest IG client sentiment report on 30 September. During this time, the New Zealand dollar fell about 1.6% against the greenback.

We typically take a contrarian view to crowd sentiment, and the fact that traders are net-long suggests that the NZD/USD could continue to fall. The number of traders biased to the upside are about 17.9% higher than what it was a day ago compared to a 2.5% drop in net short positioning during the same period. The combination of current sentiment and recent changes does offer a stronger NZD/USD bearish contrarian bias.

NZD/USD client positioning

NZD/USD client positioning Source: DailyFX

NZD/USD client positioning Source: DailyFX

New Zealand dollar technical analysis – fading downside momentum

While IG client sentiment is offering a bearish outlook for NZD/USD, near-term technical signals are warning to treat downside progress with caution. As the New Zealand dollar set lower lows in September, positive relative strength index (RSI) divergence emerged. This indicates fading downside momentum and at times, this can precede a turn higher or translate into consolidation.

In the event of further losses, keep a close eye on 2015 lows which may act as near-term support between a range of $0.6245 to $0.6197. If this area is taken out, that would then expose the 61.80% Fibonacci extension at $0.6129. Otherwise, turning higher may then result in NZD/USD testing falling resistance from July – red lines below. Closing above would open the door to testing September highs ($0.6425 – $0.6451).

Learn the basics and process of shorting forex and NZD/USD

NZD/USD daily chart

NZD/USD daily chart Source: TradingView

NZD/USD daily chart Source: TradingView


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