- New Zealand dollar testing resistance
- Multiple long wicks
- 20-day EMA slicing through candlesticks
The New Zealand dollar rallied a bit during the trading session after initially falling on Thursday, showing signs of confusion yet again. The market rallied towards the crucial 0.6335 handle again, only to fail. That being said, as the Americans pick up the ball, we started to see a bit of “risk-on” as the stock markets opened. The problem here is that it only takes a tweet or headline to throw things into disarray again.
The trade headlines coming out of the United States may cause some nausea when it comes to trading the forex markets. Plus, with the New Zealand dollar being so highly levered to the Chinese and Asian economy in general, it will be one of the first places traders will look to once the rumors start flying. At this point, it’s very difficult to imagine a scenario where the Americans and the Chinese come together with any type of clarity, so it’s likely at this point that we will see traders short this pair yet again.
Unfortunately, we have already seen the beginning of the rumor mill move the markets. With that being the case, it’s very likely that we will see a lot of choppy volatility. So it’s worth looking at the charts for small moves, not large ones.
The market sees obvious resistance just above at that 0.6335 handle, as the market simply has not been able to break above there. Beyond that, the 50-day EMA is just above and more than likely going to cause some issues, as it does tend to attract a certain amount of attention. Ultimately, the market will be paying attention to the risk appetite of traders around the world, as the US/China trade talks take front and center. New Zealand, unfortunately, will be a likely victim of headlines.
To the downside, the 0.63 level is very likely to be a target, but a break down below probably opens the door to the 0.6250 level. At this point, a range is more than likely going to be the trade going forward, especially over the last couple of days as the talks continue. In fact, the results of the talks won’t probably be known until late Friday, meaning that the true larger-term trade is going to be on Monday.
The trade going forward
Once the market breaks out of these levels though, you can start to put a little bit more money to work for a longer-term move.
- New Zealand dollar highly levered to Chinese situation
- Multiple sell-offs just above
- 50% Fibonacci retracement level
- Negative trend
The New Zealand dollar has kicked off the Wednesday session with strength. However, as can be seen from the previous three daily candlesticks, each of these rallies has in fact sold off to form shooting stars. There is nothing on this chart that suggests that a breakout is imminent, other than the fact that there has been a significant amount of selling every time we got close to the 0.6325 level.
The technical analysis in this market has seen a lot of push and pull, and certainly it has been very resilient in its attempt to break out. However, it has failed three times already. Beyond that, it’s already starting to roll over during the day, so it’s unlikely to continue going higher. Eventually, exhaustion comes into play, and the market probably drips quite a bit lower from there.
The 50% Fibonacci retracement level is sitting just above current pricing, and the red 50-day EMA is starting to rise towards this level as well. There has been a nice bounce, but it’s just a quick bounce that you will see occasionally in a downtrend. All of that being said, if the market was to recapture the 50-day EMA, then the market would probably go looking towards the 100% Fibonacci retracement level, which is closer to the 0.6450 level above.
Keep in mind that the New Zealand dollar is highly sensitive to what goes on in Asia, and Asia is very sensitive to China. At this point, the Chinese have suggested that they are willing to do a partial deal: buying more soybeans from the United States. It seems the Americans are not going to accept that, and there seems to be a bit of a disconnect around the world as traders continue to believe Donald Trump will be willing to sign on. This is a severe miscalculation on the part of traders, which is quite surprising considering it has happened more than once. By the end of the week, it’s very likely that the Americans and the Chinese will have made very little progress, if any at all.
The trade going forward
The trade going forward is to simply fade this pair, unless there is a sudden surge higher based on a headline. This would have to be a real headline, not just a rumor. The 50-day EMA being broken to the upside could offer a buying opportunity. However, at the first signs of exhaustion, traders will come in and push this market lower, as headlines across the wires claim that the Americans are not willing to go along with any type of partial deal.
Unlike most politicians, the US president has a day job he can go back to, so he’s willing to take political risks.
- Royal Bank of New Zealand keeps rate steady
- “Risk-off” continues
- US dollar getting bid
- Asian economy still an issue
The New Zealand dollar initially tried to rally on the back of a “no rate cut” decision overnight by the Royal Bank of New Zealand, which was less dovish than some people may have anticipated. The statement suggested they are willing to step in and support the markets, as well as the economy, however they need to. In other words, it’s very likely they will step in and do something eventually. As a result of this, and the fact that markets are forward-looking, it is understandable that the New Zealand dollar lost value.
There is most certainly a continued downtrend in this market, and any other market that is risk-related at this point. Because of this, it makes quite a bit of sense that the forex community has shunned riskier commodity currencies such as the New Zealand dollar in favor of treasuries and the like. After all, there are a whole host of issues that could come into play when it comes to this market. Ultimately, this is a market that should continue to show signs of negativity and offer selling opportunities on short-term bounces.
“Risk-off” issues everywhere
During the overnight session, it was announced that the US Congress is starting the impeachment investigation of US President Donald Trump. This suggested a “risk-off” attitude straight away, but it should be noted that impeachment is a longer-term process and takes quite some time to actually occur. As such, it’s likely that we will continue to see buyers stepping in for the US dollar, based on the US Treasury markets rallying. We have seen a nice pop in bonds lately, and that raises demand for US dollars.
We also have the US/China trade war going on, and that has its own effect on the markets. Granted, China has decided to start buying pork again, but it has more to do with the current epidemic going through the barnyards of mainland China. This isn’t so much consolatory as it is a necessity.
The trade going forward
The trade going forward in the New Zealand dollar is more of the same. In other words, we will be looking for opportunities to short this market every time it rallies. The 50-day EMA is approaching the 0.64 handle, so we’ll probably continue to see sellers in that vicinity. A fresh, new low is also a sell signal, perhaps sending this market down to the 0.60 level. This area has not been seen for ages, but at this point, there seems to be very little stopping that from happening over the next several weeks.
The one wildcard would be if the Americans and the Chinese came together in some type of trade agreement. However, that seems to be a highly unlikely scenario to occur between now and the election in 2020.
- Investors retreat into safe-haven yen on the back of continued US-China trade tensions
- UK political crisis puts further pressure on market sentiment
- New Zealand dollar hits a four-year low after weak business confidence data
Thursday morning saw the yen climb against the US dollar as investors continue to remain on edge regarding the potential fallout from the US-China trade war that keeps escalating. Investors seem to believe there is little chance of a positive resolution to the situation in the near future.
The yen climbed by 0.2% against the US dollar to trade at 105.83. This marks a significant gain, with the growth of 2.5% being the largest monthly increase in the past quarter.
Market sentiment pressured by a no-deal Brexit
Another contributing factor to the poor sentiment is the market’s belief that a no-deal Brexit is increasingly likely. The political crisis in the UK escalated after PM Boris Johnson decided he would suspend parliament for over a month before Brexit.
While it will mean that his opponents will have less time to derail a no-deal Brexit, it also increases the likelihood of a vote of no confidence against the PM and government. This could mean early elections.
Seema Shah, the chief strategist at Principal Global Investors in London, stated that, economically speaking, “actively pursuing a no-deal Brexit through suspending parliament is tantamount to actively pursuing a recession.”
The effects of the Brexit situation are already being felt across Europe. For example, the recent decline in Germany’s export figures isn’t caused by the trade war, but by lower sales to the UK.
Chinese comments allay investor fears
On Wednesday, US President Donald Trump officially imposed the additional tariff of 5% on Chinese goods worth $300 billion. September 1 and December 15 were declared collection dates for the said tariff.
Instead of retaliating, on Thursday the Chinese government stated that officials from Beijing and Washington D.C. were working together to set up talks for September.
Gao Feng, the spokesperson for the Chinese ministry, stated that the goal for the talks is to have a calm discussion to prevent further escalations, as well as to solve existing trade problems between the two countries.
Investors were reassured, which led to the US dollar recouping its losses against the yen. During the mid-morning US trading session, the USD/JPY was trading at 106.45.
The comments out of China helped the USD climb against other major currencies as well. The US dollar index rose to 98.368, equating to an increase of 0.3%.
NZ dollar declines due to poor business confidence
The New Zealand dollar hit a four-year low against the USD on the back of a weak ANZ Business Confidence indicator, which dropped to -52.3. This is the lowest this indicator has been since 2008 and shows a significant drop from its July level of -44.3.
The NZD/USD was trading at 0.6309, which worked out at a loss of 0.4%. This is the lowest the NZD has been since the end of Q3 2015.