Opportunities seen in potential NZDUSD rallies
It's been a week of relentless selling for NZDUSD, after the Reserve Bank of New Zealand announced an unscheduled meeting that took place on Thursday, July 21, 2016.
Key takeaways from the meeting:
- Further policy easing will be required
- Policy will continue to be accommodative
- A decline in the NZ dollar is needed, as it is holding down tradable goods inflation
After the meeting, NZDUSD declined further, reaching a low of 0.6950 for Thursday. For today, NZDUSD continues to sell down, although the intensity of the decline seems to have moderated.
The slow stochastics indicate that price action is about to turn to the upside, suggesting a possible short-term recovery for NZDUSD. Should this happen, NZDUSD will be a good candidate to sell on rallies, given the dovish bias of the RBNZ.
In view of the declining downside momentum, coupled with a dovish overlay on the currency, we are calling a short on NZDUSD on rallies.
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Management and risk description
We can use a Fibonacci retracement from the July 13, 2016 high to the July 21, 2016 low to determine suitable entry points to sell NZDUSD. Between this two points, the retracements are as follows:
The 23.6% retracement is at 0.7037.
The 38.2% retracement is at 0.7090.
Sell NZDUSD limit at 0.7037, GTC
Sell NZDUSD limit at 0.7090, GTC
Buy NZDUSD stop at 0.7230, GTC (76.4% retracement)
Buy NZDUSD stop at 0.7318, GTC (100% retracement)
Target: a possible target would be 0.67, which would be around the May, 2016 lows.
Time horizon: the latest selldown in NZDUSD has lasted for nine days to date, and we expect it wil take 2-3 weeks for our profit target to be reached.
— Edited by D. Deacon