NZD/USD Price Analysis: Bulls look for correction, but GDP slated

• NZD/USD bulls seeking a significant correction post the Fed's ambiguity. 
• However, the GDP for NZ is first on tap and will be important. 

NZD/USD has been thrown over the edge by traders covering a short US dollar position following the Federal Reserve's surprise hawkish announcement. 

Casting minds back to the prior Fed meeting on the 28th April where the Fed kept its easy money policy in place despite an economy that is acknowledged are accelerating, NZD/USD rallied 50%, or 37 pips, before correcting 38.2% of the move ahead of a continuation of an additional 30 pips. (DXY sank 50 points, or 0.6% the same day).

It could be argued that today's event was twice as eventful as the prior and NZD/USD has dropped almost double what it did in the prior meeting. (DXY rallied 0.9% or 83 points). 

Given the velocity of the moves in forex, corrections could be a slower burn than in markets back in April, but considering the ambiguity of the Fed's inflation outlook, given that inflation is still expected to be transitory despite potentially longer lasting than first expected, imminent and significant corrections are still very much on the cards. 

Fed chair Powell's comments were important for which traders will be digesting over the coming sessions and of which will determine the prospects of corrections in forex and their strengths. 

Dollar bullish:

• Inflation could turn out to be higher and more persistent than we expect.
• Longer-term inflation expectations appear broadly consistent with Fed goal.
• Would be prepared to adjust policy if inflation expectation moved too high.
• Many participants forecast conditions for liftoff will be met sooner than previously thought.

Dollar bearish

• Over time seems likely that things driving up inflation will be temporary.
• Timing of inflation moderation is uncertain.
• We expect to see increases in supply over coming months, and inflation to move down.
• Fed projections do not represent a committee decision or plan.
• Even after lift off, policy will remain highly accommodative.
• We need to see more data, we need to be a little more patient.
• Will maintain purchases until substantial progress made.
• Substantial further progress still a ways off.
• Fed will provide advanced notice before changing asset purchases.

All in all, this leaves plenty of scope for sizeable corrections in the US dollar for the sessions ahead.

The following is a top-down analysis that arrives at the conclusion that at least a 38.2% Fibonacci retracement is plausible to retest the monthly and daily key levels. 

Monthly chart

0.7116/20 area is a key level that could be targeted. 

Daily chart

The level coincides with prior daily structure as well and a 61.8% Fibonacci retracement level that the bulls could target.

Hourly chart

Therefore, there is every likelihood that a 38.2% Fibo retracement could be realised in the forthcoming sessions, but the New Zealand Gross Domestic product will be important for the kiwi.  

A current 38.2% Fibo arrives in the 0.7080s.