Trade of the Week – NZDUSD

NZD: Q2 GDP held up better than many expected. It certainly did better than markets anticipated. However, the more markets picked through the details, and keep digesting the leading indicators. Last week’s business surveys added weight to the view of a slowing New Zealand economy. And not just because of chronic supply constraints. There is growing evidence that demand-side pressures are backing off. While growth is likely to surprise the RBNZ to the downside, short-term CPI inflation looks set to surprise to the up. For the meantime, however, there is also the irony that the government is struggling to spend as much as intended, on account of a severe lack of resources to be able to carry out the work. The latter does not speak of an economy currently suffering a relative lack of demand.

USD: On the CFTC front, both leveraged accounts and asset managers moved in favour of the USD in the latest reading, although this may not fully account for the shift in USD sentiments last week. Notably, implied short USD bias in the asset manager accounts, first reached in 4Q 2016, now stands almost at neutral levels. The greenback weakened across the board following the job report, slipping against nearly all majors except for JPY and GBP which ended minimally lower against the USD. The dollar index barely changed (-0.06%) at 98.81 after falling for four consecutive sessions.

From a technical and trading perspective I am anticipating continued Dollar weakness from Tuesdays Year To Date high, with the test and failure at the yearly R1 pivot. Last week the NZDUSD formed a bullish weekly reversal pattern combined with significant sentiment and momentum divergence, also not the potential for major double bottom at the .6200 level. As such I will venture long through last weeks highs placing a protective stop below this weeks lows. Expect initial resistance to come in around .6600 trendline resistance, as .6400 acts as support look for another leg higher to target the .6800 major trendline resistance and yearly pivot trade will remain valid for the week, however, if it doesn’t trigger by Fridays New York close I will be cancelling the order.

Please note that this material is provided for informational purposes only and should not be considered as investment advice. The views discussed in the above article are those of our analysts and are not shared by Tickmill. Trading in the financial markets is very risky.

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