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Contributors Top Trade Idea For January 29th, 2014 – NZD/USD

forex_logoThe Fed’s two-day meeting concludes on Wednesday and their decision will be released in a statement at 7pm GMT, but there won’t be a corresponding press conference. That’s just as well because the Reserve Bank of New Zealand will release its own rate statement just one hour after the Fed’s. So expect a lot of volatility in the NZD/USD pair in particular, especially if both central banks alter their policies. However the consensus expectation is that the RBNZ will hold fire and keep rates steady at 2.50% on this occasion. As far as the Fed is concerned, the general feeling is that they will go ahead with their reduction process and taper QE by an additional 10 billion dollars. That’s despite the fact that we have seen several disappointing economic data releases of late, not least the US labour market report for December, plus the on-going turmoil in emerging markets.

It feels like such a long time since we last saw a major move in the Kiwi. Whichever time frame you look at, you get the same picture: consolidation. The weekly chart, for example, suggests that the pair is stuck between 0.8100 and 0.8550. Likewise, the daily time frame shows narrowing consolidation between 0.8130 and 8430. But given that price is currently trading above both its 50- and 200-day moving average levels (of 0.8240 and 0.8145 respectively), as well as a couple of long-term trend lines, one could argue the trend is still bullish for this pair. However both of the moving averages are flat or falling, which means the trend is not entirely conclusive. Whether or not the outcome of the abovementioned central bank meetings will spur some life into the kiwi remains to be seen. But as analysts and traders we must be prepared for various outcomes and react accordingly.

Taking a closer look at the pair, I think there’s potential for a break out to the upside.  As you can see on the 1-hour chart, below, as well as a bearish trend line two separate Fibonacci retracement levels converge around the 0.8285/90 area, which have so far helped to limit the upside. But although the bearish trend is still, at the time of this wring, intact on the pair, the resulting selling pressure from this area has apparently been getting progressively weaker. This may well be due to profit-taking ahead of the FOMC and RBNZ meetings. Thus if the bears continue to unwind their positions, price may break higher due to the lack of volume and possibly trigger some stop loss orders which could lead to a sharp move even before the outcome of the central bank meetings. In this scenario, price could easily reach the 61.8% Fibonacci retracement of the larger downswing at 0.8345 before making its next move. Similarly, if support around 0.8260 is taken out, price could fall back to 0.8210/0.8195 area. Beyond these levels, it is worth keeping an eye on some of the longer-term levels as highlighted on the daily and weekly charts above (with blue indicating support and red for resistance).

About Fawad Razaqzada

frFawad is FOREX.com’s technical analyst based in London. He entered the FX market in early 2010. Having graduated from Brunel University with a degree in economics, and mentored by some of the industry’s leading experts, he has an excellent understanding of the fundamental drivers of the markets. But it is his unique ability to predict price moves using technical analysis that has made him popular amongst his peers. Fawad is regularly quoted in the leading financial publications such as the Wall Street Journal, Reuters, Market Watch, FT and Associated Press. On a day to day basis, Fawad produces and delivers market commentary and research for FOREX.com, with an emphasis on technical analysis. He achieved his CISI Level 3 Certificate in Investments (Derivatives – Retail) in early 2011.

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