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Talking Points:

• NZD/USD Technical Strategy: Flat

• New Zealand Dollar recoils from five-month trend line resistance level

• Adverse risk/reward parameters warn against taking short position for now

The New Zealand Dollar is backtracking after hitting testing resistance capping gains against its US counterpart since mid-November. Negative RSI divergence bolsters the case for a downside scenario, hinting a larger top may be taking shape.

A daily close below the 23.6% Fibonacci retracement at 0.6750 clears the way for a test of the 38.2% level at 0.6673. Alternatively, a move above resistance at 0.6867, the intersection of a falling trend line and the 61.8% Fib expansion, paves the way for a challenge of the 76.4% threshold at 0.6936.

The long-term NZD/USD trend is pointing downward, which is expected to continue per our 2016 fundamental outlook. Prices are too close to support to justify entering short from a risk/reward perspective however. With that in mind, we will remain flat and wait for a more compelling opportunity.

What is the most common mistake in trading NZD/USD? This might be it.

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