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Is There Trade Opportunity to Exploit in the New Zealand Dollar?

Is There Trade Opportunity to Exploit in the New Zealand Dollar?

2018-03-14 02:00:00
John Kicklighter, Chief Strategist
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Talking Points:

  • General market conditions are oriented towards range and congestion rather than strong breakouts and trend
  • Many majors are further anchored by fundamental concerns like the Dollar on tariffs, Yen for risk and Pound with Brexit
  • The Kiwi is undermined by is fading carry appeal, but it has proven more responsive to volatility - a risk with NZ GDP ahead

Are you watching the New Zealand Dollar for trading opportunities around the GDP release? Join Ilya Spivak as he covers the event and its impact on the market live in a free webinar which you can sign up for on the DailyFX Webinar Calendar.

Looking for Ranges, Not Trends

The New Zealand Dollar is not likely one of the first currencies that comes to mind when you are looking for opportunities in the FX market. And yet, this currency fits our current market conditions better than most of the more liquid majors. Most traders are on the hunt for strong prevailing trends or the staging for major breakouts. However, the general market is supporting exactly the opposite trade scenarios. Mustering the level of conviction necessary to clear congestion with intent - much less carrying out the beginning of a true trend - is highly unlikely given the conflicted fundamental nature between themes like risk trends, monetary policy and trade wars. Trying to hit on the rare exception to rule is a practice in chasing low probability circumstances. For those that intend to stay in the market for more than just one big 'homerun' trade, rule number one is to adapt to the market your presented with rather than attempt to force your preferences on a deep and complex system that pays individuals little heed.

The Problem with the Dollar, Euro and Pound Among Others

There is nothing wrong with the concept of prioritizing volatility. Market depth is exceptionally important for stability and identifying opportunities that more readily abide by technicals and consistent fundamental themes. However, liquidity rarely provides trades - it just allows for them. The most liquid currencies in the FX market are in fact facing complications that are more likely to trip up significant progress than to promote it. For the US Dollar, the onus of tariffs the President announced on steel and aluminum tariffs - but offered up a 15 day grace period to argue exemption - is leaving the market on edge over the scale of escalation towards trade wars. A number of Euro pairs look staged for action, but the mix of ECB policy intention, political stability and trade standing are keeping investors from committing to a clear view on the common currency. And while the UK budget this past session provided a measure of volatility for the Sterling, the haze around Brexit has tripped up trends and more than a few seemingly critical breaks recently.

Is There Trade Opportunity to Exploit in the New Zealand Dollar?

We Know What to Expect from the Kiwi

Expectations are important. When we approach a technical pattern like the clear range from EUR/USD, though we may appreciate the fundamental backdrop which undermines expectations of a key breakout; there is still an appetite to seek out the low probability but seemingly high profitability of a strong clearance of 1.2600 or 1.2200. A yearning for a big move often overrides our appreciation of the environment and subsequently draws traders into unreasonable positions. With the Kiwi Dollar, there are less emotions drawing us towards the more hero-inspiring trades. Market participants are more likely to make an evaluation of what is in front of them with shorter duration swings which acclimates us to exposure with shorter lives, more reasonable stops and tighter targets. For the Kiwi crosses, range is fairly common; yet a jolt of volatility is likely in the upcoming NZ GDP figures for 4Q. That can offer the same degree of charge for a short-term swing in well defined patterns as we had seen with NZ and Australian GDP or news of Canada's tariff exemption recently. We discuss the unique appeal of the New Zealand Dollar as it aligns to market conditions in today's Quick Take Video.

Is There Trade Opportunity to Exploit in the New Zealand Dollar?Is There Trade Opportunity to Exploit in the New Zealand Dollar?

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