Kiwi wings clipped
The plunge in China's equity market in August precipitated a steep drop in NZDUSD. Since then NZDUSD has rebounded and the currency pair is well above both the August low and peak.
The intraday NZDUSD technicals are bearish. The uptrend from the end-September low of 0.6230 finished with yesterday’s move below 0.6780. The current downtrend is intact while trading below 0.6830. In addition, assuming that 0.6890-0.6900 is a short-term top, Fibonacci retracement suggests a steeper decline to the 38.2%l and 50% levels
The prospect of continued China growth concerns, renewed commodity price weakness and bearish intraday technicals argues for additional NZDUSD losses and a retest of the 100-day moving average.
Management and risk description
Risks to this trade idea include a “less-doveish-than-expected” ECB statement and remarks at the news conference on Thursday that lead to widespread US dollar selling. The NZDUSD stop would be vulnerable. Better-than-expected Chinese PMI data on Friday would also be detrimental and expose the stop-loss, as would strong New Zealand trade data on Monday.
Trade idea parameters
Entry: Sell 1/2 position of NZDUSD at market (currently 0.6725), balance at 0.6780
Time horizon: Close by Tuesday, October 27, to avoid RBNZ statement risks
NZDUSD 1-hour chart showing stop loss level
NZDUSD 4-hour chart showing broken uptrend
NZDUSD 4-hour chart with Fibonacci retracement levels
NZDUSD 5-year daily chart with moving averages
— Edited by John Acher