Kiwi dollar falls as FX traders catch their breath

ForexNewsNow | Published on November 8, 2010 at 9:20 am

New Zealand dollarNEW YORK (Forex News Now) – After a massive surge in the rate of the New Zealand dollar against the greenback, FX traders are taking a breather as the pair has become overbought in the past few days.

After a truly parabolic move like the one we have seen since the New Zealand unemployment numbers came out better than expected last week, it is not uncommon to see FX traders take a break from buying the currency. Because of this, you often will see traders wait for a pullback to the previous support level.

As plotted on the chart below, 0.7500 was the previous resistance area, which traders will be looking to see if it holds at support. Judging by the strength of the move, all indications suggest that it should. Rarely do moves of the strength and ferocity get wiped out just as quickly.

With market participants been surprised by the New Zealand employment change coming out at 1% as opposed to 0.5%, and the unemployment rate dropping 3/10 of a percent, it is obvious that the market was out of balance in its assessment of the Kiwi dollar. When the market is out of balance like that, often it will throw things out of kilter for the next few days.

Working against the strength of the New Zealand dollar, would of course be a worldwide financial risk, a flight to safety, or a host of other dangers around the world.

Also attached on the chart below, is a pink rectangle that represents the entire support and resistance area. It should be noted that the top of this rectangle is the 0.7600 area. We could possibly see support show itself towards the top of this box as well, not bothering to go all the way down to 0.7500 or even the lower part of this box at 0.7400.

Certainly by in the New Zealand dollar at these lofty levels would be a case of chasing the market, making it more prudent to let the market as the support area plotted below.

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