Short term
Trade view / 21 October 2015 at 14:05 GMT

Kiwi wings clipped

FX Trade Strategist / www.Loonieviews.net
Canada
Instrument: NZDUSD
Price target:
Market price:
Background

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.

That won't last. Today’s 3% drop in two key Chinese equity indices served as a reminder that China’s growth concerns are far from over, as did yesterday’s drop in GlobalDairyTrade prices. In addition, Fitch announced a downgrade of New Zealand dairy group Fonterra’s foreign currency issuer default rating to “A” from ‘AA”.

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

Stop: 0.6840

Target: 0.6610

Time horizon: Close by Tuesday, October 27, to avoid RBNZ statement risks


NZDUSD 1-hour chart showing stop loss level
nzdusd
 Source: Saxo Bank

NZDUSD 4-hour chart showing broken uptrend
nzdcad

Source: Saxo Bank

NZDUSD 4-hour chart with Fibonacci retracement levels
nzdusd
 Source: Saxo Bank

NZDUSD 5-year daily chart with moving averages
nzdusd

Source: Saxo Bank


— Edited by John Acher


Non-independent investment research disclaimer applies. Read more
3y
vyacheslav111 vyacheslav111
your opinion now ?
3y
Michael O'Neill Michael O'Neill
Hi vyacheslav111: I am sorry for my tardy reply. This idea does not look good (obviously). I don't know why there is a sudden demand in commodity currencies. One possibility that I heard was that the doveish statements from the ECB and the prospect of additional BoJ stimulus reduces the Feds ability to hike this year. That sentiment may be why AUD, Kiwi and USDJPY rallied..
The four hour chart shows NZDUSD hugging the downtrend line from October, although the validity of the line is questionable.

I think when Asia comes in, their may be follow through NZDUSD buying so it makes sense to reduce the loss and close the trade here at 0.6805
3y
Michael O'Neill Michael O'Neill
On the other hand, 0.6840 was selected as a great stop loss level to avoid getting stopped on "spikes"
3y
vyacheslav111 vyacheslav111
Thanks!!!
3y
yuiyui yuiyui
I think NZDUSD short is on hold for now Argument being the currency selloff happened a little fast and it has been said that the present level is reasonable. The fact that post GDT selloff was rejected lends credence to that, i think. Furthermore there was a disconnect with the selloff of EURUSD which implies USD is more important to the valuation of Kiwi...
3y
yuiyui yuiyui
Plus risk-on = NZD bullish
3y
Michael O'Neill Michael O'Neill
Yuiyui: I know better than most, the perils of being stubborn in a trade, but I am going to be stubborn here. Two reasons- 1) China data. Central Banks everywhere are concerned about China's economic slowdown. Tonight we get China PMI data and Leading Indicators. If PMI is weaker than last months 47.2, it can't be good for Kiwi (or other Commodity currencies 2) the attached chart. Kiwi is still in a downtrend on the daily chart and today's rally halted right on the 38.2 Fibo number.
3y
yuiyui yuiyui
sure, but NZ is not vulnerable to mining commodities depreciation and before this last one. there were 2 strong GDT numbers which looks like it has had a profound impact on sentiment.
Markets are a little China-centric and have been focusing too much on manufacturing and particularly the slowing down of infrastructure spending which is not telling the story of an economy shifting into growing the services sector which does not disfavor New Zealand as much as Canada and Australia for example which may lead to NZD to strengthen relative to those.
Euro stimulus has been favorable to risk-on too.
Look, i have just painfully lost a few bets thinking there was some room down for NZDUSD. Now i'm not saying that i am absolutely bullish but i am noting that there are some factors making short Kiwi sketchy.
I think now it is all about USD and Yuan strength.
3y
Michael O'Neill Michael O'Neill
Good points but I will let my stop run the trade although I may be less optimistic on the take profit
3y
yuiyui yuiyui
I wish you all the best, I am always rooting for you.
3y
Michael O'Neill Michael O'Neill
I shudda cut when it was cheaper. :(
3y
yuiyui yuiyui
:( tomorrow is another day
3y
Moot Moot
Michael, you are looking more brilliant by the minute. .6781 and falling at the moment.
3y
yuiyui yuiyui
He's brilliant either way, haha!
3y
Teja Teja
I agree with you yuiyui. :)

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