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How stable is the NZDUSD Range? • Levels to Watch: -Range Top: 0.7500 (Range, Pivot) -Range Bottom: 0.7100 (Range, Fib, Pivot) • Manufacturing strength in the U.S., Europe and China has reignited risk appetite, ending stocks and commodities recent slide. Corporate earnings continue to beat estimates adding further support, as concerns ease over stagnating growth absent government stimulus. Given the NZD/USD”s high correlation with risk bullish momentum is gaining steam and could foster a break to the upside. • Psychological support at 0.7000 held for a second time as price action has traded above the level since the middle of September. Considering the sharp reversal following the last test of the support line, a bullish position is justifiable. Additionally, the 38.2% Fibo of 0.5873-0.7638 at 0.6953 reduces downside risks. Suggested Strategy • Long: An entry of 0.7100 confirms a change in sentiment and allows for profit potential. • Stop: Set the stop to 0.7000 as another test if support may increase downside risks. To secure profit, move the stop on the second lot to breakeven when the first target hits. • Target: The first target is one-and-a-half times initial risk at 0.7250 (150). The second is 0.7272 61.8% Fibo of recent bearish trend. |
Trading Tip – The recent bearish trend adds a level of risk to the trade and diminishes the potential for a test of the upper range. We may be seeing a temporary break in prevailing risk aversion which leaves open the door for a fundamental catalyst to spark a resumption of the trend. A week of market moving releases increases the potential for volatility and makes it likely that our stop will be run or our target met. Bullish expectations for the most significant indicators favors a profitable trade but a single miss could erase any gains and increase potential for losses. I would wait for the upcoming RBA decision before entering a position, as I expect it could have a significant impact on the pair’s price action. Continued tightening from its Antipode cousin will only raise interest rate expectations for the RBNZ. Markets are already pricing in a 20% chance of a rate hike the New Zealand central bank’s next meeting, with expectations of 191 bps in tightening over the next twelve months.
Event Risk for the UK and Switzerland
New Zealand – Quarterly employment data will present event risk from its own economic calendar with economists forecasting a rise in unemployment to 6.8% from 6.5%. Additionally, the change in employment for the period is predicted to have declined by 0.1% which could be concerning since we have started to see other developed countries generate job growth. However, contraction would be the lowest in a year and considering it is measuring a three month period the economy most likely added jobs at the end of the year. A sign that the labor market is improving is the rises in wages. Private wages are forecasted to rise for a consecutive quarter by 0.4%, adding to the case for a RBNZ rate hike and increasing the potential for bullish “kiwi” sentiment.
U.S. – Following the stronger than expected U.S. manufacturing data a similar surprise from the service industry could continue today’s surge in risk appetite. Economists are forecasting that the gauge improved to 51.0 from 50.1for the sector that accounts for 70% of GDP. However, the most market moving event for the week may be the Non-farm payroll report which is expected to show the U.S. economy added 10,000 jobs. Job creation in the world’s largest economy will raise expectations for global consumption and should boost risk appetite. However, the result may not necessarily translate into a positive development for the NZD/USD longs as it could raise U.S. interest rate expectations and spark a greenback rally.
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