The broader market was moving in tandem today, responding to a broad shift in risk appetite that has at least temporarily knocked investors off their steady bull trend. It would have been difficult to escape the influence of this underlying market driver today; so we need to take it under consideration for any position that we should develop today.
Why Would NZDUSD Hold a Range?
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 0.6800 (Fib, Range High)[/B]
[B]-Range Bottom: 0.6625 (Trend, Pivot, Fib, SMA)[/B]
· Risk appetite has been the primary driver for price action across the various asset classes through the open of this week. However, the follow through on Friday’s reversal has come with very little fundamental backing. Looking out over the rest of this week, there are few pieces of scheduled event risk that could reasonably expected to fuel sentiment on its own. For country-specific impact, top concern is Friday’s Jackson Hole symposium.
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· From [a technical standpoint](http://www.dailyfx.com/story/bio2/Dollar_Long_Term_Bull_Resumes_1250517668577.html), the hard-fought advance above 0.66 since June has developed a significant platform for support. The 0.6600/35 region has immediately put in for successful tests of support. Furthermore, there is a short-term rising trend from mid-July that is further backed by a 38.2% Fib and 20-day SMA to stabilize a floor.
[B][I]Suggested Strategy[/I][/B]
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· [B][U]Long[/U][/B][B]: An entry of 0.6665 is well above today’s low and allows for the slow rising trend.[/B]
· [B][U]Stop[/U][/B][B]: A stop of 0.6586 will cover the rising trend and pivot level without taking too much risk on. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B]
· [B][U]Target[/U][/B][B]: The first objective equals risk (80) at 0.6745 and the second[/B][B] target is set to 0.7085. [/B]
[B]Trading Tip[/B] – The broader market was moving in tandem today, responding to a broad shift in risk appetite that has at least temporarily knocked investors off their steady bull trend. It would have been difficult to escape the influence of this underlying market driver today; so we need to take it under consideration for any position that we should develop today. However, in looking at the development of market flows through the day and taking stock of the event risk due over the rest of this week; there seems a good probability that this reversal will quickly run out of steam. For pairs like NZDUSD that have remarkable support, the potential for a turn to congestion is much higher. The previous range high through June and July around 0.6600/25 stands as a new floor for this sharp reversal to be held up at. What’s more, at this point, the market-wide decline is merely a pullback in a larger bull wave. Nonetheless, we take a chance with positioning against such a wide-spread shift in momentum. Therefore, we need an appropriate strategy to lower risk and ensure we are able to cut out in time should conditions sour. The first step we can take is to lower position size to fit risk appetite. As for levels, our suggested entry should give a high probability for an active position; and our initial stop covers both the five-week rising trend and the pivot around 0.6625 (the first target is therefore well within reach). We will cancel all open orders by Wednesday.
Event Risk for New Zealand and US
New Zealand – There are a few indicators on the New Zealand calendar over the coming week that could potentially feed into fundamentally-derived price action. However, producer-level inflation, consumer spending on credit and the two-year inflation forecast will not hit upon the market’s more actionable concerns (namely the pace of economic recovery, the definable outlook for benchmark yields and general risk appetite). Realistically, the kiwi dollar will find its direction from exogenous influences. It is hard to define what will and will not have the right mix of influence and mass impact to guide broader risk appetite over the coming week. The only notable event on the docket is Friday’s Jackson Hole gathering in the US which will cover a no-doubt significant topic for officials to debate.
US – After a series of weeks with major event risk crossing the wires (FOMC rate decision, NFPs, GDP), we are now coming upon a slump in event risk. Looking at the docket for the week ahead, there are very few indicators that will have very much impact on the underlying fundamental trends much less short-term volatility. The only noteworthy data on tap is related to housing sector activity. Housing starts and existing home sales data for July will gauge vital statistics for a component of the economy that is considered the catalyst for the world’s current struggles. Sales data is the foundation reading, offering a benchmark measure of demand and inventories. Second quarter mortgage delinquencies will be closely watched for not only the health of housing; but the recovery in health of the credit markets as well. Despite the lack of data, the dollar has generally been very volatility. This suggests underlying trends could develop into trends even before the commentary at Friday’s Jackson Hole symposium can factor in.
[B]Data for August 18 – August 25[/B]
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[B]Data for August 18 – August 25[/B]
[B]Date (GMT)[/B]
[B]New Zealand Economic Data[/B]
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[B]Date (GMT)[/B]
[B]US Economic Data[/B]
Aug 18
Producer Prices – Output (2Q)
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Aug 18
Housing Starts (JUL)
Aug 21
Credit Card Spending (JUL)
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Aug 20
Mortgage Delinquencies (2Q)
Aug 25
RBNZ 2yr Inflation Expectation (3Q)
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Aug 21
Existing Home Sales (JUL)
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Aug 25
Consumer Confidence (AUG)
Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? Send them to John at <[email protected]>