NZD/USD Rate Approaches Monthly Low As RSI Sell Signal Emerges

NZD/USD approaches the monthly low (0.7006) as the RSI falls back from overbought territory, and the correction from the yearly high (0.7104) may gather pace as the US Dollar continues to reflect an inverse relationship with investor confidence.

Swings in risk appetite may continue to sway NZD/USD as the Federal Reserve appears to be on track to deliver a dovish forward guidance at its next interest rate decision on December 16, and it seems as though the central bank will rely on its current tools to support the US economy as “participants judged that it would be appropriate over coming months for the Federal Reserve to increase its holdings of Treasury securities and agency MBS at least at the current pace.”

It remains to be seen if the Federal Open Market Committee (FOMC) will adjust the monetary policy outlook ahead 2021 as Chairman Jerome Powell and Co. “assess how our ongoing asset purchases can best support our maximum employment and price-stability objectives as well as market functioning and financial stability,” but the break above the June 2018 high (0.7060) suggests that the recent weakness in NZD/USD could end up being an exhaustion in the bullish trend rather than a change in market behavior as key market trends look poised to persist in the year ahead.

Image of IG Client Sentiment for NZD/USD rate

At the same time, the tilt in retail sentiment from earlier this year has resurfaced as the IG Client Sentiment Report shows 25.44% of traders net-long NZD/USD, with the ratio of traders short to long-standing at 2.93 to 1. The number of traders net-long is 5.76% lower than yesterday and 5.76% lower from last week, while the number of traders net-short is 4.28% lower than yesterday and 0.15% lower from last week.

The decline in net-long position comes as NZD/USD approaches the monthly low (0.7006), while the minor shift in net-short interest has done little to alleviate the tilt in retail sentiment as 26.65% of traders were net-long the pair earlier this week.

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