The New Zealand Dollar: Still No Love from Commercial Traders

08/03/2017 2:53 am EST

Focus: CURRENCIES

Michael Golembesky

Analyst, ElliottWaveTrader

Both of the patterns that I am watching on the NZD/USD are longer term bullish, the shorter term pattern will likely be determined over the course of the next several weeks, says Mike Golembesky, an Elliott Wave analyst covering U.S. indexes, volatility instruments, and forex.


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The New Zealand dollar vs. the U.S. dollar (NZD/USD) has seen an almost 11% run from the May lows into the July 26 high. During this run higher, the pair has seen very shallow retracements as traders continued to drive the price higher until finally topping.

Since that top the NZD/USD has seen its deepest retracement since it began its run off of the May lows. Currently, the pair is testing some smaller degree support levels which should help set the course over the next several months.

I had written several previous articles about this pair and had noted the open interest levels for the commercial traders based on the Commitment of Traders COT data.

When the NZD/USD was trading at the 0.7037 level, I had written that the open interest for the commercial traders was at their highest levels since July 2015. This was helping to give additional confirmation to the bullish outlook that I had on the pair based on the impulsive wave pattern that was in place.

When the NZD/USD was trading at the 0.7268 level I had noted that the open interest for the commercial traders had turned lower and was at their lowest levels since April 2013. This suggested that that pair may be due for a pullback which is what I was also looking for from the chart patterns. The NZD/USD did see a minor retracement, bottoming at the 0.7201 level. This was a very shallow retrace and certainly not as deep as I would have preferred based on where we were in the pattern then.

A current look at the COT data shows that the open interest levels for commercial traders have continued to fall and is now are now well below those 2013 levels. This may be supportive of seeing a deeper retrace that the pair has to date been unable to achieve. We would first need to see a break of the smaller degree support levels to open the door to this scenario, however.

While both of the patterns that I am watching on the NZD/USD are longer term bullish, the shorter term pattern will likely be determined over the course of the next several weeks.
Since the July 26 high the pair has now retraced into the 50% retrace level from the July lows. If the NZD/USD is going to see a more immediately bullish follow through then the pair should ideally hold the 0.7379 – 0.7285 zone.

If the NZD/USD is unable to hold that smaller degree support zone, then it would open the door to seeing a much deeper retrace down towards the 0.7187 – 0.6699 zone. This would not invalidate the larger bullish pattern on the pair but it would certainly delay the immediate path towards those higher levels.

The COT data may be supportive of a deeper retrace for the New Zealand dollar. However, if it is able to hold onto the smaller degree support levels and break higher, I will certainly not stand in its way.

See charts illustrating the wave counts on the NZD/USD.

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