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How stable is the NZDUSD Range? • Levels to Watch: -Range Top: 0.7330 (Pivot, Trend, SMAs) -Range Bottom: 0.7100 (Pivot, Fibs) • For any dollar-based major, Friday’s NFPs presents a salient and consistent concern even if its market-moving precedence has diminished in recent months. Over the months, the general trend of improvement behind smaller net job losses has reflected the sentiment that a US recovery would be measured in its development. In the meantime, the fundamental development of NZDUSD will remain with risk appetite – a vague but overarching driver. • The past two months of NZDUSD price action looks very much like a pattern that precedes a large reversal. If this week’s upswing stalls anywhere below 0.75, it would confirm a third lower swing high. However, aiming for a lower turning point; the collection of a 50% Fib, well-worn pivot, former trend and 20 and 50-day SMA all fall around 0.7325. Suggested Strategy • Short: Though aggressive, an entry of 0.7315 is reasonable given the larger pattern. • Stop: Placing a stop at 0.7380 will cover volatility at the 0.7325 pivot but not a higher reversal. To secure profit, move the stop on the second lot to breakeven when the first target hits. • Target: The first target is greater than risk at 0.7215 (100). The second is 0.7115. |
Trading Tip – Despite passing through a week of excessive volatility; the market is in the same general place it was for the past month and a half: looking for a clear trend to once again establish itself. Risk appetite has been shaken fears of a Dubai default; because even though the threat wouldn’t pan out, we have already established how jumpy the market is and how readily the masses are to take profit and even short establish yield plays. Looking for a range setup within this broader congestion/reversal setup; NZDUSD offers a clear example of what we are dealing with along with viable technical levels to develop a trade around. Since setting a 15-month high peak back in October, we have seen a series of lower swing highs and lows. In the process, the pair has also breached another rising trendline that had helped to define the steady advance that began in the first quarter of the year. Our suggested strategy looks to play with the further development of the reversal (though it doesn’t depend on making much downside progress). Realistically, a reversal scenario would hold as long as the next swing high doesn’t surpass the November 0.75 high; but we are looking at much more defined resistance further down at 0.7330. A distinct collection of technicals in this area provides some stability and our stop will cover moderate volatility in a turn from this area. Our suggested second target is set for a higher probability outcome; but if you believe a bearish reversal will indeed make headway; this objective can be set much wider.
Event Risk for New Zealand and the US
New Zealand – There will be a noticeable pickup in scheduled event risk for the New Zealand dollar next week; but in the meantime, the currency’s short-term volatility and prevailing trend will be the responsibility of underlying risk appetite. Since last week’s credit scare from Dubai and the flight to safety move made by traders in all market classes, we have seen volatility balance out; but the ultimate sense of sentiment is still being debated. After recovering the ground lost with a threat that wouldn’t develop; the market now finds itself in the same struggle for a trend that had defined price action for nearly two months before the liquidity event. However, in this scenario, we now have a precedence for pushing for risk aversion (even if it was a temporary move). Looking ahead to next week, early GDP components come into view; but it is the RBNZ’s rate decision that will attract traders’ attention following the RBA’s efforts.
US – For the dollar, no specific indicator or individual fundamental concern has a greater influence on price action than underlying risk appetite. The greenback has maintained its standing as one of the primary funding currencies for a carry trade that grows increasingly popular as sentiment improves. For this reason, scheduled event risk will not likely define this benchmark currency’s immediate future. Instead, unpredictable shifts in underlying currents will make for a tenuous fundamental backdrop. That does not mean however that scheduled event risk can’t around volatility. This Friday’s NFPs has a history of catalyzing a sharp adjustment for the dollar.
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