Talking Points:
- NZD/USD bouncing from what appears to be a key support area below the 0.7080 level
- CPI data missed estimates to see a quick drop of about 70 pips for the Kiwi
The NZD/USD is trading above the 0.71 handle (at the time this report was written), after the currency saw a bounce off support following a quick drop on a miss to CPI estimates.
A quiet economic calendar might imply that risk trends will be in focus for directional conviction today, as the pair's move higher seems to have coincided with firming sentiment.
Taking this into consideration, we look to find short term trading opportunities using the Grid Sight Index (GSI) indicator.
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A quiet economic calendar appears likely to see sentiment trends taking center stage today. The Kiwi saw a move lower in the Asia session, even though other sentiment linked currencies moved higher alogside share prices, on the backdrop of the miss to CPI estimates, which appears to have added to RBNZ rate cut speculation. The bounce higher following the quick decline might be, at least in part, related to firming sentiment. Consequently, if we see a shift in risk trends, the sentiment linked currency could suffer on the aforementioned fundamental backdrop, as well as from a general “risk off” situation.
NZD/USD 3-Min GSI Chart: July 15, 2016
The NZD/USD is trading near a resistance level at 0.7120 (see chart below). Indeed the GSI indicator is implying that 48% similar past momentum events have seen some downside movements. The indicator calculates the distribution of past event outcomes given certain momentum patterns, and can give you a look at the market in a way that's never been possible before, analyzing millions of historical prices in real time. By matching events in the past, GSI describes how often the price moved in a certain direction.
You can learn more about the GSI here.
NZD/USD Technical Levels:
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We use volatility measures as a way to better fit our strategy to market conditions. ATR readings (on a 14-day study) is signaling the highest levels since April. Taking this into consideration might indicate breakout and trend oriented plays might be appropriate.
NZD/USD 30-Min Chart With SPX 500 Overlay: July 18, 2016
The NZD/USD is trading at what appears to be a level of resistance at the 0.7120 figure. Further levels of resistance on a move higher might be 0.7151 and a zone above the 0.72 handle. If price manages to move above that area, focus might be put on the 0.7250 figure followed by what looks like a key resistance area above the 0.73 handle.
Levels of potential support on a move lower may be 0.71, followed by the area of support below 0.7080, an area below 0.7050 followed by another zone below the big 0.70 figure.
When price reaches those levels, short term traders might use the GSI to view how prices reacted in the past given a certain momentum pattern, and see the distribution of historical outcomes in which the price reversed or continued in the same direction. We generally want to see GSI with the historical patterns significantly shifted in one direction, which could potentially be used with a pre-determined bias as well.
A common way to use GSI is to help you fade tops and bottoms, and trade breakouts. That’s why traders may want to use the GSI indicator when price reaches those specific pre-determined levels, and fit a strategy that can offer a proper way to define risk. We studied over 43 million real trades and found that traders who do that were three times more likely to turn a profit. Read more on the “Traits of Successful Traders” research.
Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing that about 40.6% of traders are long the NZD/USD at the time of writing, reducing short positions significantly on the move lower, perhaps taking profits too quickly after an extreme short reading July 10 (see the “Traits of Successful Traders” research). In turn, this could imply further weakness ahead.
You can find more info about the DailyFX SSI indicator here
--- Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com
To contact Oded Shimoni, e-mail oshimoni@dailyfx.com
