The US Dollar strength is gaining massive momentum. What started as a tiny snowball has in the meantime turned into an avalanche of USD buying. This USD rally is not only visible against the majors like EUR (down 1350 pips over 4.5 months), GBP (down 1150 pips over 3 months) and JPY (up 900 pips over last 3 months) but also versus the currencies with relative strong interest rates such as the NZD (+3.5%) and AUD (+2.5%).
Although the AUDUSD and NZDUSD trend started later compared to the majors, they too seem to be picking up speed. For instance, at the open of this week’s trading the NZDUSD downtrend heavily accelerated with a hard fall of 180 pips. What on earth just happened?
The Kiwi fell so much and so fast that the pair has already hit the bearish target Nathan mentioned in this NZDUSD contest (click here). Despite the lack of any scheduled news event or data release from China, Australia or New Zealand, the start of the week was full of fireworks as the NZD fell a whopping 180 pips against the USD and 230 pips against the EUR in the first few hours. The most valid explanation seems to be last week’s massively bearish candle with:
- A close very near the low and
- A strong candle (300 pip size) compared to previous bearish weeks (see screenshot below).
What is next?
Price has reached a monthly bottom and is close to the end of the month and 3rd quarter (30 September), which often translates into price action consolidation. However when traders look at the NZDUSD September’s month candle, they will see a massive momentum candle knocking on the door of the support and that avalanche could be too strong to hold.
Conclusion: after the break of the support trend lines I am expecting this bearish avalanche to continue and to a break through the monthly support level, but it seems likely that this will happen in October rather than in the last day of trading in September. Also some retracement of this month’s bearish candle in October could happen as well – for instance to the 23.6 or 38.2 Fibonacci levels of this month’s candle – before the downtrend continues. This Friday’s upcoming NFP event will certainly be an event that could spark volatility:
- Look for disappointing figures to cause a retracement of the bearish candle and
- For ‘better than expected’ figures to drive the Kiwi to lower lows.
The Aussie downtrend started later because the currency pair was stuck in a consolidation zone for 5 months. As traders can see in the screenshot, so far the downtrend has in fact only lasted one single month. However, the AUDUSD is catching up fast as this month’s candle is currently down a whopping 730 pips.
With such a massive breakout candle it seems difficult to imagine how the AUDUSD could not continue with the downtrend. The bottom might be a small stalling spot but not more than that. A retracement of this month’s candle could occur similar to the NZDUSD but will depend on the NFP figures as well. Once this month’s lows is broken during next month’s trading, then the coast could be clear for continuation breakouts down to the bigger Fibonacci targets.
The Aussie seems to be heading only towards one direction: south.
Let us know what your view on the NZD and AUD down below!
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