Big Trend Warning: the US Dollar Ready for Major Lift Off in 2nd Half of 2014

On Thursday the Reserve Bank of New Zealand (RBNZ) decided to increase its interest rate by 25 basis points from 3.25% to 3.5%. This is a move that would usually signal New Zealand Dollar strength. But this time around the exact opposite occurred: the interest rate hike caused its currency to fall hard across the board and against all of the other majors.

The central question is: why and what happened?

24- 7- 2014 nu

WHY THE KIWI FELL (AND DID NOT RISE)

The Reserve Bank of New Zealand (RBNZ) has labeled the current level of the kiwi dollar as “unjustified” and “unsustainable”. This has given rise to expectations that the RBNZ could intervene in the markets to weaken the currency.

The NZDUSD has fallen from its high of 0.8835 on July 10 down to below 0.8590 as of the 24th of July. The NZDUSD had approached a multi decade high of 0.8840 which was set 3 years ago, but has failed to break through the magical level. With a fall of more than 2.5 cents, the Kiwi in fact seems to be picking up momentum to the other side.

NZDUSD

US DOLLAR STRENGTH

Whereas New Zealand could face intervention from the RBNZ, the other side of the currency pair must also be considered: the U.S. Dollar. The USD could be another reason why the NZDUSD is come under increasing bearish strain. Is a trend in the US Dollar possible as markets prepare for interest rate discussion and potential hike?

YES. With geopolitical tensions on the rise and the US economy offering signals of some recovery, the US Dollar could become the currency in demand for the 2nd half of 2014 and (the beginning of) 2015.

Using technical analysis we can estimate at what point a US Dollar trend has started.

USD CHARTS

EURUSD: with the break of the 1.35 support recently this pair has started a down trend. The weekly chart is posting lower lows and low highs after a break of the rising wedge (orange lines) at the 61.8% Fibonacci retracement. Although weekly horizontal level (green) still stand in the way of a full fledge downtrend, the downside momentum is picking-up especially if price manages to break below 1.3450.

EURUSD

[GBPUSD: although the GBPUSD uptrend has been very strong, this currency pair is now having struggles with its upward path.]

24- 7- 2014 gu

Price has broken out of its uptrend and is back below the monthly broken resistance and top of 1.7040. These are signals that a reversal could occur from these highs. A break below 1.6950 and later on below 1.67 is in fact needed for a downtrend to be in force.

What are YOUR expectations of the US Dollar for the rest of the year??

Happy Trading!

 

 

 

 

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Chris is the head of the mentoring program and trading room at Winner's Edge Trading. He has a passion for technical analysis and helping Forex traders achieve their goals in trading. Chris has been trading for almost 10 years and is most fond of the Double Trend Trap (as a strategy), moving averages (as an indicator) and Fibonacci (as a tool).
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  • Derek Teo

    mean eur/usd and nzd/usd will continue down?

  • Chris

    Yes exactly – the GU the “fakeout” specialist :) Thanks for the RT!

  • http://jbmaverick.wordpress.com/ Jack Maverick

    “GU loves breaking tops and bottoms and then go the opposite way”
    Indeed – ever the king of the “fakeout” before a major move the other way.
    All right, I’m going to tweet this article now and make you famous. :)

  • Chris

    Hi Kanwar, thank you for the feedback! The USD reversal is on the early side, I agree. The EU broke the rising wedge but it will need more momentum in order to break out of the consolidation zone. A continuation of a bigger consolidation is certainly a viable path as well. Kiwi has a double top potential but would need to break through weekly support – just as GU at 1.67ish before a reversal is closer to confirmed. As always keeping an eye on the “lines in the sand” when price approaches them for more shorter-term clues.

  • Chris

    Hi Jack! Thanks for the feedback – always appreciated! I can understand why you are (more) bullish on the GBPUSD. And agree that there is a decent chance that the downside is just a retracement for more upside. Reason for GU reversal potential is because it has divergence and broke the monthly resistance (GU loves breaking tops and bottoms and then go the opposite way). A retracement back down as deep as the 78.6% Fib (from July 2013 to current top) at 1.53 and then up to 1.80 is something that would not surprise me. But as always lets see what the charts confirm :) starting with how price handles the 1.6950 support. Thanks Jack!

  • Kanwar

    I would disagree on both. NZDUSD was up for correction anyways – the market was only holding up for a .5% expectation. NZ economy seems to be going pretty strong but may be flat lining for a short term. Looks like a sideways range of .82-.86 will hold for a long time to come barring any financial crisis. GB economy has been giving consistently better numbers for first half of the year but has seen mixed numbers recently. The US economy on the other hand has good job and manufacturing numbers but the stronger aspect of housing stays very weak. Fed may raise the rate by .25% but not more as they do not want to steam roll the economy. Do not expect interest rates to rise significantly till the next elections. All in all both NZD and GBP will move sideways after some correction. GBP will probably hit 1.745 before any significant reversal. The EUR is a whole different story – middle east and Russia diversified significantly to the EUR back in 2008 as the USD was hit hard from all sides. These countries have been holding the EUR value higher than it really is. We will continue to see this upward pressure maintained from the current levels. Analysts had been wrong on the Euro even during the Greek crisis (remember those talks of EURUSD at 1.18 – well it never made it below 1.27 and even stayed there for less than a day).

  • http://jbmaverick.wordpress.com/ Jack Maverick

    Respectfully partially disagree – Eur/Usd, yes, is likely in for a significant downfall – but Gbp/Usd has just tapped a major support level on the daily time frame, and I look for it to head back up from here.
    Good article as always though.