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Money Matters
- NZD/AUD - Time to buy again?
- NZD/USD - The standstill provides opportunity
- NZD and AUD - Key Levels
- NZD/USD - Trend Ready
- USD Pairs - an intriguing week
- USD Pairs - an intriguing week (part 2)
- AUD/USD - Downmove should continue
- Dr Copper - Another clue
- USD Strength - was that it?
- Another confirming factor for USD weakness
- View archive...
Money Matters
Viewing entries tagged with 'NZ'
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.
NZD/USD - Trend Ready
All
The NZD/USD is carrying over its relative weakness from overnight with another very poor performance today.The pair is TREND READY and following the false break profiled in my two recent articles (USD pairs – An intriguing week) that trend looks very likely to be DOWN.
My experience is that trending moves occur from periods of tight consolidation. The pair has been trapped in a narrow range for over 5 weeks now. If you like, think of it as a period of play where bulls and bears battle it out with little or no effect until the loser is vanquished and the winner free to have their way. This is precisely what is happening.
The false break to the upside on Thursday only serves to make the move down more enduring as week shorts get stopped out prior to the move unfolding thus removing a number of buyers on the way down.
Daily chart – Bollinger band are very tight reflecting the narrow range trade of recent. Thursday clearly looks to have been a false break.
NZDUSD Daily – click here to view chart
Hourly chart – a closer look. MACD is doubling down from below 0, not a good look.
NZDUSD Hourly – click here to view chart
As with all trades, no matter what the conviction, position sizing is paramount. For those wishing to trade this move please call in for discussion on appropriate positioning.
Regards G.
USD Pairs - an intriguing week
All
I used the term ‘intriguing’ in my headline but I could just as easily substituted ‘nasty’. My sell recommendation in the AUD/USD was in the money by 100 points the very next day but two days later the AUD/USD was 220 points higher. Only the nimble made money.
Overnight the world seemed to go mad on embracing ‘risk’ but the world economies that I read about look decidedly troubled. Personally I am a bear on global growth which is suggestive of equities going lower and presumably ‘risk’ being shunned. However the charts as I interpret them do not support my view for the moment. That leaves me side-lined.
A few charts of interest that I am watching.
Dow Jones Index – I interpret this chart as the beginnings of a new bear market. The 7 month up-trend has been broken and the rally of the last two days I believe is just a re-test of the break down. Also bear markets are noted for their volatility and where you can see the grinding nature of the last few months up, the latest moves have been very ‘noisy’ (big down, big up).
Dow Jones – click here to view chart
NZD/USD – The kiwi is historically VERY highly correlated to the performance of U.S. shares. And yet this chart absolutely contradicts my equity market view right now. Right now, if the kiwi closes the week above 0.8261 then a ‘bullish engulfing week’ would be suggestive of higher ahead.
NZDUSD – click here to view chart
Not only is the kiwi showing ‘bull’ signals but EUR, AUD, GBP, Gold and Silver are all displaying positive signs on my short term models. Usually I’d just follow them but for some reason I can’t shake the ugly feel I get from reading about the prevailing fundamentals.
Personally I’ll be sitting the week out and looking for more clues come Monday.
Regards G.
USD Pairs - an intriguing week (part 2)
All
Friday’s price action is highly suggestive that my preferred ‘negative equities –slowing global growth’ theme (see below previously) is the prevailing wind. I’m suggesting selling EUR/USD here and now with sell signals in NZD,AUD, Gold and Silver very close at hand.
Technically if you look at the ‘risk’ complex they are all very ‘trend ready’……………..that is they have been confined to very narrow ranges (and thus very narrow Bollinger Bands) for a month or so and that is typically where the best moves spring from.
NZD/USD
NZDUSD – Click here to view chart
EUR/USD
EURUSD – Click here to view chart
Gold and Silver look on the edge of the precipice too with a move through last week’s lows likely to be a precursor to substantial falls.
Regards G.
AUD/USD - Downmove should continue
All
Just a quick note first up this morning. The AUD/USD pair should continue to fall today following the significant ‘risk off’ theme overnight. With the Dow recording its largest fall this year, the IMF suggesting commodity prices will fall and China trade will slow, the AUD should be an easy target.
The charts shows not only a ‘bearish engulfing day’ (my all-time favourite indicator) but a break of the 7 month uptrend support line (NZD has broken its respective support too).
Dr Copper - Another clue
All
Since my piece of last week ‘Watershed USD strength – digging deeper into the FED speak’ market action has been somewhat mixed with the long standing relationship between a soft USD and stronger global share markets breaking down. So what is going on?
One clue could be the performance of industry integral, base metal, Copper (or Dr Copper, PHD as Gartman likes to refer to it). The following chart documents the rather large 6.2% fall last week.
The fall suggests traders see slowing global demand (and less scope for a growth supportive U.S FED?). This should be a poor sign for the likes of NZD/USD and AUD/USD with AUD and Copper being very highly correlated over the years.
G.
USD Strength - was that it?
The last two weeks have been categorised by a sharp bout of USD strength.
Since U.S. Fed chairman Bernanke’s testimony to congress on the 8th of March, where he made no mention of another money printing program (QE3), the market has had it in their collective minds that the FED is changing course (super easy U.S. monetary policy has been at the very fore-front of FX moves since the GFC).
This is despite the fact that Bernanke, in his Q&A session at the congressional testimony, suggested that growth wasn’t following the improvement in jobs and that there was a ‘fiscal cliff’ approaching in the form of the withdrawal of some very supportive U.S government spending programs later in the year. Indeed in the FOMC meeting of last week, the FED reiterated their stance that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. Does that comment sound like the FED are about to change course?
So given my view that nothing has changed what can the charts tell us? Well everywhere I look the charts suggest that the USD strength was short term in nature and the bigger trends are reasserting themselves.
Exhibit 1 – NZD/USD weekly chart. A clear bullish hammer here last week with a similarly ill-fated trip south the prior week both suggestive that solid buying interest is present below 0.8180 (no closes lower than that the last two weeks despite dips toward 0.8060). Further the last 3 weeks appear merely ‘corrective’ to the bigger trend up off 0.7300. Note the gorgeous key weekly reversal at the 0.7300 lows!
NZD USD Weekly Chart click to view
Exhibit 2 – NZD/JPY weekly chart. Arguably the NZD/JPY is the ultimate arbiter of ‘risk’ and this chart is even more impressive. A fierce pullback on Bernanke testimony that was very short lived creating a very significant ‘hammer’ rejection followed by a seeming confirmation move higher last week.
NZD JPY Weekly Chart click to view
Exhibit 3 – The Dow Jones Index. The share market does not look concerned about higher interest rates anytime soon as it surges to new 4 ½ year highs.
The Dow Jones Index Chart click to view
In summation the 3 charts shown suggest strongly to me that the focus on a FED change these last two weeks is ill-considered and the broader conditions that have been in play for so long are now reasserting themselves.
Another confirming factor for USD weakness
We are seeing USD weakness prevalent everywhere right now. Gold and Silver moving strongly higher, EUR at 4 month highs, NZD and AUD pushing at the top of 1 month consolidations. In Asia earlier today we saw SGD (Singapore Dollar) gap higher and now this news on China
SYDNEY, Feb 29 (IFR) – The PBOC has set USD/CNY today at 6.2919, the lowest level (or highest yuan value) since the 2005 revaluation
This feels to me like the 2010 when I often noted “if it’s not one thing making new highs against the USD then it’s another”.
