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Viewing entries tagged with 'NZD'
Bullish failure?
All
Last week I reluctantly suggested that equity markets and ‘risk’ could turn north in response to the Eurozone developments of the previous week. Those thoughts were made on balancing weak data against the possibility of central bank responses which I thought would bolster sentiment.
However, after a week where we saw China surprise and cut interest rates, the UK expand their quantitative easing program and the ECB cut interest rates, global equity markets have failed to take solace from the central bank moves and ended last week lower than they started. The very weak global manufacturing PMI’s and the tepid U.S jobs report certainly overshadowed the stimulus moves. That, I’d imagine, is not a good sign.
In the wake of last week a number of ‘risk on’ instruments are displaying potential ‘topping’ signals.
NZD/USD – Dennis Gartman often likes to return to a trade in the 50%-61.8% box of the previous move. The NZD/USD in this instance traced out a ‘shooting star’ reversal week right from the 61.8% bounce of the last fall. No joy from central bank actions + sharply falling commodities (our dairy prices fell nearly 6% last week) suggest downside is again back in vogue. The AUD/USD is almost identical.
NZDUSD – Click here to view chart
S&P500 – The daily chart of the ‘big board’ in the U.S. paints a similar picture. Whilst the index stays under Thursday’s high the technicals look bearish.
S&P500 – Click here to view chart
There are two obvious game changers lurking in the background. Any certainty that the FED will come riding over the hill with QE3 will change the dynamic as will a wide ranging agreement from European policy makers. Until then it appears that the doom scenario may again hold sway.
G.
Bullish Failure?
All
Last week I reluctantly suggested that equity markets and ‘risk’ could turn north in response to the Eurozone developments of the previous week. Those thoughts were made on balancing weak data against the possibility of central bank responses which I thought would bolster sentiment.
However, after a week where we saw China surprise and cut interest rates, the UK expand their quantitative easing program and the ECB cut interest rates, global equity markets have failed to take solace from the central bank moves and ended last week lower than they started. The very weak global manufacturing PMI’s and the tepid U.S jobs report certainly overshadowed the stimulus moves. That, I’d imagine, is not a good sign.
In the wake of last week a number of ‘risk on’ instruments are displaying potential ‘topping’ signals.
NZD/USD – Dennis Gartman often likes to return to a trade in the 50%-61.8% box of the previous move. The NZD/USD in this instance traced out a ‘shooting star’ reversal week right from the 61.8% bounce of the last fall. No joy from central bank actions + sharply falling commodities (our dairy prices fell nearly 6% last week) suggest downside is again back in vogue. The AUD/USD is almost identical.
NZDUSD – Click here to view chart
S&P500 – The daily chart of the ‘big board’ in the U.S. paints a similar picture. Whilst the index stays under Thursday’s high the technicals look bearish.
S&P500 – Click here to view chart
There are two obvious game changers lurking in the background. Any certainty that the FED will come riding over the hill with QE3 will change the dynamic as will a wide ranging agreement from European policy makers. Until then it appears that the doom scenario may again hold sway.
G.
The Return of the Reluctant Bull
All
As an avowed bear this doesn’t come easy, but as John Maynard Keynes was attributed as saying “When the facts change, I change my mind. What do you do, sir? Reluctantly I am now a bull on ‘risk’.
Yes, the EU Summit measures to date only appear to be addressing the symptoms and not the root causes. But when German Chancellor Merkel says on Wednesday “Europe will not have shared total liability for debt as long as I live” and then agrees to concede to a Euro wide bailout fund and the dropping of austerity requirements then I guess the facts have indeed changed. I believe you need a frightening event for policy makers to act in the required fashion and when Italy and Spain’s (both regarded as ‘too big to fail’) borrowing costs approached/went over the 7% bailout zone I think the EU policy makers had stared squarely into the abyss.
Indeed, over the rest of the year I’d expect more positive developments to come out of the Eurozone now.
Further, a major point in the bear case for me has been that the U.S. FED would not delve into their bag of tricks anytime soon as QE3 surely has to be a consideration of ‘last resort’. But last night’s huge fall in the ISM is potentially another game changer. One month’s data won’t be enough to move the FED but another months poor data and the they could be forced into action. One only has to understand ‘Helicopter Ben’s’ background to acknowledge the possibility of more stimulus.
Poster boys for the change story are the NZD/USD and the AUD/USD which are now displaying quite solid bull signals on the charts.
NZD/USD – The NZD/USD has surged out of the upward sloping 10/20 moving average band which were already trending up, as are the Bollingers and the MACD.
NZDUSD – Click here to view chart
Yours, the reluctant bull
G.
NZD/AUD - Strong NZ GDP should cement higher levels
All
Fundamentals for a higher NZD/AUD have been lining up very nicely of late.
NZ house prices up, Australian house prices down. Numerous Australian businesses are shifting operations to N.Z. The RBA have been cutting interest rates (1.25% off their cash rate since November) whilst the RBNZ gave guidance last week that their next move is likely to be a hike in Q2 2013. One can now argue this GDP result sets the scene for an earlier rise given anecdotes about Q2 are already strong (ANZ have a new indicator, their ‘Truckometer’. That measure jumped 3.3% in May, the largest in the series (brief) history. The Truckometer should be the earliest of indicators that business and the movement of goods is improving).
NZDAUD – Click here to view chart
Regards
G.
NZD/AUD - Further update
All
Further to my piece NZD/AUD – Time to buy again? (dd 25/05) it has been suggested that it is time to lift stop losses as part of prudent account risk management following on from the overnight low seen on the massive Australian GDP report. If Australian jobs today surprise on the upside, confirming yesterday’s news, then being long NZDAUD may not be warranted.
G.
Last week in equities
All
The sharp declines in global equity markets last week traced out ‘bearish engulfing weeks’ in a number of indices, strongly suggesting that further falls will be seen over coming weeks.
From my observations over the years, the ‘engulfing’ signals, be it bullish or bearish, are one of the more reliable indicators around.
In the case of last week, the markets were already in a multi-week downtrend when they tried to rally early in the week (breaking the run of lower highs – which should be a bull signal) only to collapse and finish on their lows (and making a new low for the trend). That is bearish price action and shows that the sellers are highly motivated.
This price action throws up many trading possibilities including shorting the index’s themselves via CFD’s or Futures contracts or selling the risk currencies like NZD and AUD (AUD the most vulnerable right now?).
The S&P500 – The ‘big board’ as they say.
S&P 500 – Click here to view chart
The Dow, the Nasdaq and the German Dax all made the same pattern.
Regards G.
NZD/AUD - Update
All
A couple of the local banks (WBC, ANZ) have today put out ‘buy’ recommendations out on NZD/AUD in line with my thoughts (NZD/AUD – Time to buy again? – dd 25 May). The ANZ report in particular has some excellent material explaining why the NZD should be higher. Get your hands on it if you can.
However, there is one noticeable development above all, that has caught my eye and screams that the NZD is undervalued against the AUD.
That is, the increasing number of Australian firms closing arms of their business in Australia in favour of increasing operations here in NZ. I heard of another example this morning on the radio but can’t for the life of me recall who it was. However here is an Australian article dd 18 April (a little old) that explores the reasons why Woolworths, Imperial Tobacco and Heinz are part of this trend.
http://www.smh.com.au/business/australian-jobs-on-the-move-to-nz-20120417-1x5jv.html
This trend is developing because the NZD/AUD is so low and the very fact that this is happening will, in due course, bring the cross rate back to higher levels (long term average is 0.8400). Indeed one could argue that if Australian business fully embraced this new trend then the cross would ultimately be 1:1.
Regards G.
NZD/AUD - Time to buy again?
All
There is no doubt that world growth is slowing and early indications are that China too is slowing at a much faster rate than has previously been anticipated.
In this environment, the one currency that looks the most vulnerable to me, is the Australian Dollar (AUD). Over the last 4 years the Aussie has been a huge beneficiary of major investment flows given it’s relatively high yield, its position as a proxy for Chinese growth and its AAA sovereign rating. The ‘long’ positions must be enormous.
In November the RBA started cutting interest rates. To date they have cut a full 1% off the cash rate from 4.75% to 3.75%. During this time the RBA have remained relatively upbeat stating that although the economy was clearly ‘two speed’ (East Coast retail, finance and housing industries very weak – West/North mining booming) the spend from on-going mining investment (capex) would hold the economy in good stead. However, in the last speech on record, the RBA noted that the flow through from mining hadn’t supported the economy quite as much as they expected. Hot on the heels of that significant statement the giant corporate BHP advised that their proposed $80 billion capex program was to be pared back as they saw demand for their products waning. Not good, the last bastion of Aussie growth being undermined (pun intended).
Thus more rate cuts look likely in Australia over time. Contrastingly, whilst the data out of New Zealand has been soft of late, the hurdle to a RBNZ rate cut from the already ‘emergency’ setting of 2.5% looks very high. The likely fillip from the Canterbury situation certainly a major factor in that view. The NZD/AUD is historically very sensitive to a narrowing interest differentials. And this cross is a nice diversification away from pure AUD/USD if you’re already on that trend lower.
Technically the chart looks supportive of this view. The uptrend line off the ‘double bottom’ low of late last year looks to have held nicely this week.
NZDAUD – Click here to view chart
Cheers G.
NZD/USD - The standstill provides opportunity
All
The NZD/USD pair has been in a particularly tight range for the last 7 weeks. This lack of direction in the pair is presumably down to conflicting forces competing but no one factor prevailing.
NZDUSD – click here to view chart
Whilst this activity can frustrate the active trader it does present significant opportunity for those with a longer term horizon in mind. You see, as the ranges dwindle, the core input for pricing options, the volatility measure, declines accordingly. This phenomenon provides scope to prepare break out strategies at very good prices.
This is nothing other than abiding to the No1 core trading rule………………………. ‘BUY LOW, SELL HIGH’.
In this case we are buying FX options very cheaply and when inevitably, volatility returns to the NZD, the options increase in value.
Whilst I have a very downbeat view of global economic prospects (and thus the NZD) I cannot, as a trader, sit here arrogantly suggesting that the range breakout will certainly occur to the downside. Thus a simple two-directional break out strategy is suggested (there are many but I profile the most simple of them here – the Straddle).
I am going to buy both ‘the right to buy’ and ‘the right to sell’ NZD/USD at 0.8165 (current market rate) into the future.
1 month – Cost is 0.0199 points. So I need the pair to be above or below 0.8364/0.7966 in 1 month
2 month – Cost is 0.0291 points. I need above/below 0.8456/00.7874
3 month – Cost is 0.0376 points. I need above/below 0.8541/0.7789
Now invariably options look expensive on the day you look at them but the number of times my clients have thanked me only a matter of days after we’ve written them is significant.
Obviously for those traders that do have a strong directional bias, the low volatility measure will have a beneficial effect on those wishing to buy one directional options.
Regards G.
NZD and AUD - Key Levels
All
The NZD and AUD have proved amazingly robust overnight in the face of a significant downturn in global sentiment. The overnight price action looks to have created corresponding CRITICAL levels in both pairs.
NZD/USD – Classic ‘uncertainty’ Doji yesterday. The pair had a wide range overnight effectively finishing mid-range near its open. A break of the low at 0.8085 would likely confirm the end of the range (particularly if the AUD/USD confirms as per below).
NZDUSD – Click here to view chart
AUD/USD – The overnight ACTION seemingly confirms the 7 month uptrend boundary.
AUDUSD – Click here to view chart
Whilst I remain bearish, the collective price action is supportive for now and not confirming of my view.
Regards G.
