Pound continues free fall against Kiwi dollar
The British pound continues to struggle overall, kicking off the week on the soft side yet again. With Boris Johnson seemingly ready to admit that the UK may leave the EU with no deal, it makes sense that the British pound continues to show a proclivity to fall even further. Because of this, I think it makes quite a bit of sense that we continue to see opportunity shorting Sterling against almost everything out there.
The Kiwi dollar of course is an Asian currency and therefore highly levered to that continent. It’s also a commodity currency, so we would probably be best served paying attention to a lot of “softs.” Ultimately, this is a market that is highly levered to agricultural exports to Asia, but also tends to be affected by commodities in general. The idea is that stronger economic growth leads to more commodity demand.
With stimulus being introduced almost everywhere, the idea is of course that commodity should do well as it helps spur economic growth. Mary that idea up with the idea of the United Kingdom being completely unpredictable, it makes sense that we continue this downtrend.
The technical analysis for this pair is obviously very bearish. We have the 50 day EMA that has recently crossed below the 200 day EMA, the so-called “death cross.” That is a very bearish sign, and beyond that we have broken down below the 61.8% Fibonacci retracement level recently as well. That being the case, we have broken down towards the 1.85 level, but then bounced from there. It now appears after the shooting star on Friday that we are looking towards the 1.85 level again, and more than likely we will build up enough momentum to finally break through that. Once we do, that opens up the door towards the 100% Fibonacci retracement level, closer to the 1.8080 level.
Rallies at this point should continue to find plenty of resistance above that you can sell into, with the 50 day EMA, pictured in red on the chart, being an excellent area that longer-term traders can get involved in. Beyond that, the hammer from about five days ago being broken to the downside is also another reason to start breaking down.
The trade going forward
The trade going forward of course is to sell this pair. I have no interest in buying this pair and I do think that we have some time to go before the British pound can be bought. Beyond the 100% Fibonacci retracement level, it would not surprise me at all to see this market be attracted to the idea of going down to the 1.80 level, which of course is a large, round, psychologically significant figure. With all that being the case, I suspect that the market is going to continue to offer plenty of opportunities to short the British pound, not only against the Kiwi dollar, but against other currencies as well. With that, I remain very bearish.