By: Bastian Rubben
The US stock markets gave us first signal yesterday for the pressure on the investors. The trading day started as usual, as the indices traded in a positive momentum but Bernanke's testifies caused sharp declines on the last hour of the day. Bernanke did not put new light on the situation and he just clarified that the European debt problem was not over yet and still threatening on the US economy. However, in spite that everybody knew this, the markets reacted as if it was new information and the declines occur. This is one of the things that you see when the markets are extremely overbought: the investors are looking for any excuse to sell stocks.
Since the USD has a negative correlation with the US indices, it will probably strengthen against the major currencies if the stocks slide. One of them is the NZD that has been weakening against the USD for several weeks, as last week I analyzed the "Inverted Cup & Handle" in the Kiwi's daily chart and estimated that a breakdown might take the NZD under 0.80 versus the USD. However, I also warned from opening a position in extreme level and figured that it could be a trap for the amateurs. The pair broke but resume right after the break-down and made the false-break, which I warned from. The pair reached the resistance around 0.83, made the bearish reversal there and it is close to the 200 SMA again, as a successful break-down this time might take the pair down to 0.785. Before that, it will have to face the support of the round number 0.80.
