Pound-New Zealand Dollar Strength Unwinds, but Charts Advocate for Further Gains

- GBP/NZD breaks winning streak
- Falls back from overbought conditions
- But analysis shows setup remains constructive

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• GBP/NZD spot rate at time of writing: 1.9684
• Bank transfer rates (indicative guide): 1.8995-1.9133
• FX specialist rates (indicative guide): 1.9094-1.9507
• For more information on specialist rates, please see here

After eight consecutive days of gains Pound Sterling finally painted a down-day against the New Zealand Dollar on Tuesday which could signal a temporary ending to the recent strong advance, but technical studies of the pair suggest further gains are ultimately still likely.

The Pound-New Zealand Dollar exchange rate recovered from a multi-week low at 1.90, hit on July 23, to trade at a high of 1.98 on Tuesday, before fading back to current levels around 1.9704.

The declines come amidst a broader setback for the Pound which was the best performing major currency of late July thanks to flows created by investors looking to rebalance portfolios at the end of a particularly strong month for U.S. equity markets.

Sterling is giving back some of these technically-inspired gains at the start of August and this is reflecting in the softer GBP/NZD exchange rate, but analysis from Trading Central - a provider of technical analysis - shows further gains in the exchange rate are still likely owing to a positive setup.

"The upside prevails as long as 1.9466 is support," says Trading Central.

However, should the exchange rate break below the pivot at 1.9466, the door to declines to 1.9122 and then 1.8918 is opened according to the analysis.

While the overall setup in the exchange rate is positive and advocates for further gains, it must be noted that the Relative Strength Index - a measure of momentum that can also however tell us if an asset is overextended - is above 70 and therefore signalling the exchange rate is overbought.

As such, recent gains might be pared and a period of consolidation could set in for the short-term as overbought conditions unwind, which in fact appears to be transpiring in the mid-week session.

"The RSI is trading above 70. This could mean that either the pair is in a lasting uptrend or just overbought and that therefore a correction could shape," says Trading Central.

Looking at the immediate-term charts - in particular the 30 minute chart which tends to give a flavour of where today's action might progress - we can see GBP/NZD is struggling and is being thwarted by the resistance point at 1.9787 which could prompt a decline and near-term consolidation in line with the unwind from overbought.

However, as long as damage is relatively shallow the move higher is ultimately expected to reassert at some point and Trading Central point to other setups that signal further advances are possible over coming days: "The MACD is positive and above its signal line. The configuration is positive. Moreover, the pair is trading above both its 20 and 50 Moving Averages (respectively at 1.9323 and 1.9382)."

Upside targets for a continuation of the multi-day trend higher, if it does indeed transpire, are located at 2.0213 and then 2.0419.