In line with the broad bullish USD trend, the NZDUSD pair has declined notably this year, particularly since the local highs from above 0.70 reached in April. The latest developments of falling commodities and an adamantly hawkish Fed suggest that further losses might be in store for the risk-sensitive Kiwi dollar. 

Fed Chair Powell, ECB’s Lagarde, and BOE’s Bailey all confirmed yesterday (in separate speeches at the Sintra conference) that their main task at the moment is bringing down inflation. Powell’s comments grabbed the most attention when he said that the damaging effects of not dealing with high inflation are greater than causing a mild recession. 

This seems like a clear message from Powell that the Fed at this point doesn’t care if it causes inflation with the rate hikes and QT and that their full focus is on getting inflation back to 2%. All in all, this means more pain for risk-sensitive assets like stocks and commodities, but also currencies correlated with these assets. Thus, it makes sense to look for shorting opportunities in the likes of NZD, AUD, and CAD against the strong US dollar.

The daily chart shows how the 0.62 zone has been important recently, managing to stop three bearish attempts. However, the last bounce from this zone earlier this month was very weak, and NZDUSD has quickly returned to now test this support again. 

Will the 0.62 zone break on the 3rd attempt?

And the 4H chart here shows how the last retracement up only managed to get to the 50% level of the last leg down. NZDUSD is now pressing on the lows again, which suggests a strong bearish bias is present here.

A break below the 0.62 zone would likely result in stops being triggered, which could accelerate the price action in addition to fresh short entries. This would be a trend-trading scenario, so traders can use trend-following tools to perhaps adjust a trailing stop loss in this case.

The 0.60 zone would be the obvious target to the downside, but a glance at higher time frames shows there are decent chances that NZDUSD can fall toward 0.58. 

The high around 0.6325 from a few days ago should hold if this downtrend will progress as described.

Entry:

• Look for a small retracement higher, perhaps toward the previous high at the 0.63 zone. Going short on a bearish signal here could provide a good risk-reward as the entry would be closer to the stop loss;
• Alternatively, if NZDUSD breaks below 0.62, then we can look to join the trend at that point with a stop behind the most recent swing high on the 4H chart (currently that is still 0.6325)

Stop loss:

• NZDUSD should not move above 0.6325; so this can be used as a stop loss level;
• Alternatively, once NZDUSD breaks below 0.62, using a trailing stop loss with a trend-following tool can work well here. For example, the parabolic SAR or countback line can work well, or a combination of the two. Check out this article where we explain how to exit trades in a trend.

Targets:

• 1st - 0.60
• 2nd - 0.59
• As already mentioned above, using a trend-following tool to exit can work well in case NZDUSD continues to fall under 0.59