pairs to range trade

New Zealand Dollar Resistance Provides Range Trade Oppurtunity

Saturday, 08 December 2007 00:31:15 GMT  |  David Rodriguez and John Kicklighter, Currency Analysts

NZD/USD has been a clear range trade candidate since mid-October. And, while the rising trendline pulling up support has been the more consistent level in the range, resistance around 0.78 has proven itself equally reliable in rejecting market runs. Technically, the biggest problem with a short position to take advantage of this pair’s range is that 0.78 has seen aggressive spikes that have pulled back before the daily candle could close.

Trading Tip – NZD/USD has been a clear range trade candidate since mid-October. And, while the rising trendline pulling up support has been the more consistent level in the range, resistance around 0.78 has proven itself equally reliable in rejecting market runs. Technically, the biggest problem with a short position to take advantage of this pair’s range is that 0.78 has seen aggressive spikes that have pulled back before the daily candle could close. To conservatively play this range, a 110-point stop would be optimal, but that opens us to too much risk; so we are setting a much more reasonable risk under the expectations that another spike of the November 11th magnitude will not form. On the other hand, this position should be monitored if spot is near resistance just before Tuesday’s NFP release. Cautious traders could remove the position if it is too close to resistance heading into this event risk (to avoid a break or whipsaw). If spot reaches 0.7720 before our position is triggered, we will cancel our orders.

Event Risk New Zealand and United States

New Zealand – The clear highlight on New Zealand’s calendar will come from Wednesday evening’s Retail Sales report, while earlier House Prices and Food Price inflation numbers may likewise force volatility across NZD pairs. Consumer retail Otherwise, traders are likely to watch for any surprises in Tuesday’s Food Price inflation reports, Sunday’s House Prices data, and Thursday’s Manufacturing Activity results. Though these reports do not typically force major volatility across NZD pairs, recently hawkish RBNZ rhetoric may shift focus towards individual releases in order to gauge interest rate prospects.

US –The clear US calendar highlight will be the FOMC Rate Decision due on December 11, while earlier Home Sales data and later Advance Retail Sales figures may likewise generate substantial intraday volatility. Market expectations for the Fed’s interest rate decision have been wrought with uncertainty—a recipe for strong volatility on the release. Range traders should likewise watch for any particularly pronounced surprises through later-week PPI, Advance Retail Sales, and CPI results. Any one of these reports could drive substantial price movements in the US dollar. As such, range traders should take special care to avoid excessive adverse continuation following these reports. 

Data for December 9 – December 16			Data for December 9 – December 16
Date	New Zealand Economic Data		Date	US Economic Data
Dec 10	New Zealand Manpower Survey (1Q)		Dec 10	Pending Home Sales (OCT)
Dec 10	Terms of Trade Index (3Q)		Dec 11	FOMC Rate Decision
Dec 11	Food Prices (NOV)		Dec 12	Trade Balance (OCT)
Dec 12	Retail Sales (NOV)		Dec 12	Import Price Index (NOV)
Dec 12	Business NZ PMI (NOV)		Dec 13	Producer Price Index (NOV)
Dec 13	Manufacturing Activity (3Q)		Dec 13	Advance Retail Sales (NOV)
Dec 14	Non-Residential Bond Holdings (NOV)		Dec 14	Consumer Price index (NOV)

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