The NZDUSD tested the 100 and 200 day MA today at the 0.8085 level. The convergence of the two MAs and the price on the daily chart is what I call “Three’s a Crowd” and typically leads to the price moving/trending away (the market transitions from non trending to trending)

What may cause some excitement this week is the Reserve Bank of New Zealand is scheduled to issue their rate statement on Wednesday at 5 PM. They are expected to keep rates unchanged at 2.50%. However, the comments by the Reserve Governor Alan Bollard could cause the balanced market to imbalance and lead to a trend type move.

At the last meeting, Bollard commented that:

  • Inflation has settled near the middle of the Bank’s target range, and inflation expectations have fallen.
  • The domestic economy is showing signs of recovery.
  • Household spending appears to have picked up over the past few months and a recovery in building activity appears to be underway.
  • The recovery will strengthen as repairs and reconstruction in Canterbury pick up later in the year.
  • High export commodity prices are also helping to support a continuing recovery in domestic activity.
  • The higher NZD was keeping inflaton contained but also was detrimental to the trade sector.

With little changed in last month, it is hard to see a change in policy or in the tone from the central bank. This is hardly the type of news to move the NZDUSD higher or lower – trending away from the converged MA levels. Nevertheless, risk on or risk off may be the catalyst. We will see.

Looking at the hourly chart below the price has been trending more to the downside over the last 6 trading days. We know, the price found profit taking buyers against the 100 and 200 day MA. That level will continue to be eyed going forward with a move and close below these two moving averges tipping the bias to the downside.

On the topside there is close resistance at the 0.8145 level (see chart below) and then higher against the topside trendline and 100 hour MA at 0.8163. Traders will be looking for sellers on a test of these levels with stops should the price break above these levels.

In the month of April so far, the low to high trading range is 231 pips. This is the most narrow range for the pair since May of 2007. When the market non trends like the NZDUSD has done this month and over the last two trading months (only 347 pips range total), there always exists that surprise followed by momentum that turns the non-trend into a trend. Traders should be aware and prepared for such a move.