Kiwi is ripe, give it a squeeze
NZDUSD rebounded sharply following the weak NFP data on Friday and is now within spitting distance of a serious test of .7000-20, representing the downtrend line from the April 2015 peak. A failure at this level should lead back to the May low.
The Reserve Bank of New Zealand interest rate decision is due on Wednesday at 2100 GMT and there is a slight chance that rates could be cut by 0.25 basis points. Those odds may have improved with the weak NFP report trimming near term US rate hike expectations.
Big NFP price swings have a habit of reversing themselves in the following days and a less than dovish speech by Janet Yellen could see the dollar recoup its Friday losses.
This trade idea will work if NZDUSD strength is tempered by either a hawkish speech from Janet Yellen on today or a RBNZ rate cut mid-week.
Management and risk description
This is a risky trade as NZDUSD is in a steep but well-defined uptrend from the low at the end of May which comes into play at 0.6875. this is a counter-trend idea hoping that the NFP reaction is just temporary. If not, it will go pear-shaped very quickly.
Janet Yellen may err on the side of caution and deliver a dovish speech today. If so, would lead to further US dollar selling and trigger the stop. The RBNZ may leave rates unchanged and that news would trigger the stop.
Trade idea parameters
Entry :Sell ½ position of NZDUSD at market (Currently 0.6935) Balance at 0.6985
Time horizon: 5 days
Chart NZDUSD 30 minute highlighting intraday uptrend and take profit level
Chart NZDUSD hourly with 2nd sell level and stop loss noted
Chart: NZDUSD 5 year daily with moving averages
— Edited by Clare MacCarthy
Non-independent investment research disclaimer applies. Read more