NZD/USD fell during much of the session on Wednesday as the "risk off trade" continued. However, by the end of the session we saw the pair bounced in order to form a hammer. This hammer is of course based on the 0.79 handle, and it does look like we may have an attempt at a rally in this vicinity.
I personally see the 0.80 level as an interesting one from which to look for weakness. With the Chinese economy slowing down, and many people out there very nervous about other economies, it would make sense that the New Zealand dollar may suffer. After all, it is a commodity currency.
The hammer does suggest the bounce is coming, but I will be sitting out this rally. In fact, I suspect that the 0.80 will be a bit much for the pair to get above. Even if it does, I still think that the 0.81 handle will also be a bit much for the pair to overcome as well. Ultimately, I think we go down to test the 0.78 handle, and am looking for a reason to short this pair in order to test this theory.
Hammer, but just under resistance
With the hammer in the resistance showing of in essentially the same area, I think this just shows that the recent fall is a bit overextended, and we are trying to get a little bit of a bounce. I am sure that there are many traders out there who see this pair falling apart and would be part of the selling. Any rally should give them the opportunity to do so.
The July 23 rally that saw this currency pair skyrocket was certainly overdone, and now we have to ask questions as to whether or not it needs to be corrected. My suspicion is that it does, and because of this we should see lower prices. I truly believe that if the 0.7 8 level gives way to the sellers, this pair will crumble and fall much lower. The first level below that that I see on the charts is the 0.75 handle. I'm not a big fan of buying this pair right now, as I think there far too many headline risks out there.
