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FX Headlines: Temporary Rebound in Risk Appetite Boosts Commodity Currencies

FX Headlines: Temporary Rebound in Risk Appetite Boosts Commodity Currencies

2011-05-24 13:13:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Despite yesterday’s losses across riskier asset classes, a temporary rebound in risk appetite in the overnight fueled by gains in commodities helped boost equity markets in the Asian and European sessions overnight, propping up the commodity currencies ahead of the U.S. session open.

FX_Headlines_Temporary_Rebound_in_Risk_Appetite_Boosts_Commodity_Currencies_body_Picture_1.png, FX Headlines: Temporary Rebound in Risk Appetite Boosts Commodity CurrenciesFX_Headlines_Temporary_Rebound_in_Risk_Appetite_Boosts_Commodity_Currencies_body_Picture_4.png, FX Headlines: Temporary Rebound in Risk Appetite Boosts Commodity CurrenciesFX_Headlines_Temporary_Rebound_in_Risk_Appetite_Boosts_Commodity_Currencies_body_Picture_7.png, FX Headlines: Temporary Rebound in Risk Appetite Boosts Commodity Currencies

Fundamental Headlines

Bullard Says Fed May Keep Rates, Balance-Sheet Steady to Assess Economy - Bloomberg

Greece to Speed Asset Sales to Stem Crisis as Bonds Drop - Bloomberg

Greek Default Could Make Others Junk: Moody’s - CNBC

French Government Says China Backs Lagarde for IMF - Reuters

NATO Steps Up Libya Campaign - WSJ

NZDUSD: The New Zealand Dollar was among the best performers in the overnight session, gaining over 1.05 percent against the U.S. Dollar at the time this report was written. Similarly strong was the Australian Dollar, as a rally in commodities in the futures market as well as a rebound in the Asian and European equity markets sessions helped boost demand for riskier assets; the Japanese Yen was the weakest performer across the major currencies. The Kiwi was also buoyed by the Reserve Bank of New Zealand issued a report showing that 2-year inflation expectations were rising, a signal to the markets that implied interest rates in the future could be higher, boosting demand for the currency. Still, with the European sovereign debt crisis seemingly reaching a boiling point, any rally across risky assets could be halted prematurely as further disconcerting news out of the currency bloc would likely cause traders to flee towards safe haven currencies, such as the Japanese Yen, Swiss Franc, and United States Dollar, and away from riskier currencies such as the Australian Dollar or New Zealand Dollar.

Taking a look at price action, the 50-SMA of 0.7793 appears to be a key level of support, as the pair was unable to break below said level in trading last week. While it had appeared that the 20-SMA was forming a level of resistence, with the Kiwi-Dollar pair unable to post consecutive closes above the moving average since the first two trading days in May, the pair surged through said level in today’s session. Nonetheless, the psychologically significant 0.8000 exchange rate appears to be the next major level of resistance, with 2011 high, 0.8120, as the final major resistance on the horizon. With fundamental pressures favoring continued risk aversion, there would need to be a substantial shift if risk appetite to see further gains without some semblance of a pullback. On a technical basis, momentum is moving towards the upside for the NZD/USD pair, with the RSI rising, at 62. Similarly, the Slow Stochastic oscillator continues to trend higher, with the %K greater than the %D, at 65 and 48, respectively. While the MACD Histogram continues to show a bearish divergence, this bias is weakening, with the differential now at -7, up from -33 on May 16. A widening bullish divergence would confirm a buy signal, from the technical perspective.

Written by Christopher Vecchio, DailyFX Research.

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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