Talking Points:
- NZD/USD held a key support area following the US Dollar rally, currently at resistance
- US CPI data the main event risk on the docket, could set the stage for FOMC
- Another dip in stocks might weigh on the Kiwi
The NZD/USD is trading around resistance at the July high, after the pair held a key support area following the recent US Dollar strength.
The US August inflation data is in focus for the hours ahead as we rapidly approach the FOMC rate decision next week.
Against this backdrop we will form our outlook and look to find short term trading opportunities using different tools such as the Grid Sight Index (GSI) indicator.
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US August Consumer Price Index data is set to hit the wires 12:30 GMT.
Expectations are for the headline year-on-year number to rise for a 1.0% print, while the Core figure is forecasted to hold steady at 2.2%.
US economic data has underperformed relative to consensus estimates in recent months, weighing on Fed imminent rate hike bets. Another miss seems likely to see the US Dollar trade lower, as inflation still seems to be the missing piece for the Fed’s dual mandate.
With that said, risks may be slightly skewed to the upside for US Dollar, as a reading in line with expectations, or a slight miss might see limited follow-through as the market looks ahead for a potential hawkish hold by the Fed, which could see the US Dollar find support relatively soon.
The preliminary reading of the University of Michigan Consumer Confidence is on tap as well, with an expected figure of 90.6 versus a prior 89.8 reading. The inflation expectations number from the survey could be in focus here as well due to the aforementioned considerations.
Another theme to have in mind when trading the pair is the potentially unfolding situation in equities and global bonds selling off. Presumably, bonds are being sold on speculation about potential changes in global monetary policy, with the ECB and BOJ in focus. If stocks stay under pressure, this seems likely to weigh on the sentiment linked Kiwi.
NZD/USD Technical Levels:
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We use volatility measures as a way to better fit our strategy to market conditions. The Kiwi’s realized volatility is still subdued based on 20-day ATR readings.
In turn, this may imply that the more “macro” levels could hold until next week, but caution is warranted on significant deviations to data, or further momentum from the themes highlighted above.
NZD/USD 30-Min Chart (With the GSI Indicator): September 16, 2016
(Click to Enlarge)
The NZD/USD bounced off support at 0.7300, with GSI calculating higher percentages of past movement to the downside in the short term from current levels.
The GSI indicator above calculates the distribution of past event outcomes given certain momentum patterns. 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.
Other support levels to watch in the short term might be 0.7278, 0.7250, 0.7200 and 0.7170.
Levels of resistance may be 0.7326, 0.7350 and 0.7400.
We generally want to see GSI with the historical patterns significantly shifted in one direction, which alongside a pre-determined bias and other technical tools could provide a solid trading idea that offer a proper way to define risk.
We studied over 43 million real trades and found that traders who successfully define risk 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 41.8% of traders are long the NZD/USD at the time of writing, after rapidly reducing shorts on the drop (perhaps too quickly- see the “Traits of Successful Traders” research).
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
Follow him on Twitter at @OdedShimoni
