Breakout Potential Sets Forex Analysts On Opposite Sides Of The New Zealand Dollar Congestion has taken over the New Zealand dollar pairs; but the hesistation comes within aggressive trend. With ranges struggling to constrain rising volatility and a decision on the market's dominate direction still on hold, it seems only a matter of time before the Forex community drives the currency to a breakout. See how our Analysts are setting up for these conditions below:
My picks: Sell NZD/USD Expertise: Fundamentals, Behavioral Finance and Volatility Average Time Frame of Trades: 1 day - 3 months
I have been short NZD/USD since last July and I expect the kiwi to remain weak going forward on speculation the Reserve Bank of New Zealand could have to cut interest rates faster than traders had previously expected to prevent the country from falling into a recession. Indeed, the rapid deterioration of the New Zealand economy has prompted many investors to exit the so called carry trades despite New Zealand’s high level of interest rate. Moreover, with the world economy slowing down is reasonable to think that the demand for commodities will also begin to slow down. As a result of this, commodity currencies like AUD, NZD and CAD will be particularly vulnerable. Looking ahead, lower interest rates could make holding the New Zealand dollar less attractive to foreign investors and the lower level of demand for assets denominated in New Zealand dollars could accelerate the losses in the NZD/USD.
My picks: EURNZD long (against 2.0841) target above 2.1280 Expertise: Technical Average Time Frame of Trades: 1 month (this is shorter)
We have been long the EURAUD for the last few weeks. Move risk there to 1.70 (locked in profit now). The trade is longer term and we are expecting a break through 1.74 in the coming weeks. Shorter term, we are more or less doubling up with a short term EURNZD long. The decline from 2.1275 is choppy and prone to a full retracement next week.
My picks: Waiting For AUDNZD Breakout Expertise: Combining Money Management with Fundamental and Technical Analysis Average Time Frame of Trades: 3 days - 1 week
For the past two weeks, the AUDNZD pair has been range bound; but with the market expecting the Reserve Bank of Australia to cut next week, there is a good probability of a breakout sometime next week. Technically, there seems to be debate in the market as two whether this pair is holding with the bullish trend from the beginning of the year or if the pull back from July's swing high has officially changed the trend. This has left the pair wedged between the 38.2% and 50.0% retracement levels of the March 21st to July 24th advance at 1.2350 and 1.2150 respectively. A close above or below either level would be strong (perhaps cautious) confirmation of a turn to a breakout.
Trying to forecast direction diminishes the probabilities of a successful trade; but considering the event risk on the horizon, it is reasonable to expect volatility and an increased potential for a breakout. While the New Zealand docket is barren; the Australian calendar holds a current account balance, GDP release and - most important of all - an RBA rate decison. Both of the quarterly indicators are expected to cool; but the policy decision is the real focus as a quarter-point hike is heavily expected. This suggests it is heavily priced in (index swaps show expectations of 100 bps of cuts through the next year); but there is still room for uncertainty. If there is no change, a bullish advance will no doubt take off - though it would be short lived as the central bank has already said it would ease sometime in the future. If there is a cut, any statement would be a backup driver as it would confirm or deny expectations of multiple cuts through the end of the year. This will significantly impact interest rate expectations - which are key to this pair. There is little impact to AUDNZD from risk trends as there is little carry and the economies are similarly tied to commodities. This means there is little correlation to the rest of the currency market - a good thing for diversification away from the all encompassing trends across most of the market.
My picks: Short NZDUSD Expertise: Macro Fundamentals, Classic Technical Analysis Average Time Frame of Trades: 1 week - 6 months
The precipitous decline of the New Zealand dollar found support at a long-term trend line in place since September 2001. Prices then retraced to support-turned-resistance at the bottom of a channel that had contained the downtrend since mid-March and turned lower once again. Trend support is reinforced by the 61.8% Fibonacci retracement of the 06/28/06-02/27/08 rally at 0.6808. Look for a daily close below this level to target the 76.4% level at 0.6468.
My picks: Long NZDUSD Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 2-4 Days
I am near term bullish the NZDUSD, as the 0.700 price level has provided significant support for the pair. This may limit our downside risk as we take a long position. The firming of commodity prices should give a post to the commodity currency and we are looking for a retracement to 0.7214 the 8/21 high with potential to 0.7292. the 50.0% Fibo of the 0.7760- 0.6828 decline.