Seeking Alpha

Sentiment Speaks: The New Zealand Dollar - Still No Love From Commercial Traders

Includes: ENZL
by: Michael Golembesky
Michael Golembesky
Currencies, newsletter provider, medium-term horizon, long/short equity

Recent price action.

Anecdotal and other sentiment indications.

Price pattern sentiment indications and upcoming expectations.

Recent Price Action

The New Zealand Dollar vs. the U.S. Dollar has seen an almost 11% run from the May lows into the July 26th high. During this run higher the pair has seen very shallow retracements as traders continued to drive the price higher until finally topping on July 26th.

Since this July 26th 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 for the pair over the next several months.

Anecdotal and Other Sentiment Indications

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

In the first article when the NZD/USD was trading at the 0.7037 level, I had noted that the open interest for the commercial traders was at their highest levels since July of 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.

The second article 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 were at their lowest levels since April of 2013. This was suggestive that that pair may be due for a pullback which is what I was also looking for from the patterns on the charts. The NZD/USD did see a minor retracement after I had written this second article 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 at the time.

A current look at the COT data shows that the open interest levels for commercial traders has 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.


Price Pattern Sentiment Indications and Upcoming Expectations

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 26th high the pair has now retrace 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.


Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.