Invest Diva is looking at the currency of New Zealand or the so called Kiwi, versus the US Dollar. We’re just about to do a 360 Invest Diva Diamond Analysis on this hot pair. At any point if you feel you’re lost in translation, check out the Forex Coffee Break with Invest Diva’s online education course. It has been called the most comprehensive and entertaining video education course on the web.
This week is looking pretty busy in terms of economic data for the US dollar. The main points of note are US retail sales, Non-Farm Employment Change and CPI inflation data, as well as the Federal Reserve’s monthly policy meeting taking place on Wednesday.
On the other side of the world also on Wednesday we will be hearing from the Reserve Bank of New Zealand, AKA, RBNZ as it announces its interest rate statement. A more hawkish than expected release will be good for the currency while a dovish change could shoot it downward. The RBNZ is considering taking measures to curb the rise in house prices, including interest rate hikes later on. However it would prefer a lower exchange rate, as it expressed repeatedly. The efforts to talk down the value of the local currency usually only enjoyed temporary success. The interest rate is expected to remain unchanged at 2.50%, where is stands since early 2011.
While things are looking neutral for Kiwi, the USD may get shaky on Wednesday, creating a perfect opportunity to trade NZD and USD against each other.
Next, let’s take a look at the NZD/USD forex dance floor*. The happy pair reached out to new highs last week on October 22nd, but then had a painful fall which broke a support level at 0.84010.
While on a downward movement, it is still trading above an upward-moving Ichimoku cloud (shown in pale green in the chart,) signaling it may shoot back up soon. It is now approaching the 38% Fibonacci retracement. (Heart Beat)
To top it all, on Friday Oct. 25th, the pair broke an uptrend channel that was formed since September (Shown in dark blue in the chart.)
Kiwi – Dollar Daily Chart with Ichimoku, Fibonnaci and channels. Click to enlarge.
Currently the ratio of long to short positions of retail traders gauged by the SSI, stands at -1.44 as 41% of traders are long the pair. Open interest is 3.6% lower than yesterday and 0.4% below its monthly average. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are short gives signal that the NZDUSD may continue higher. The trading crowd has grown less net-short from yesterday and last week. The combination of current sentiment and recent changes gives a further mixed trading bias.
I would check again on Wednesday for a more clear sense on the market sentiment.
As you hopefully have noticed, I’m eyeing the Kiwi-Dollar for a potential bullish position to be entered on Wednesday. If the fundamental releases have a positive impact on the USD, and a neutral/ negative impact on NZD, those will push the pair down towards either the 38% or 50% Fibonacci retracement levels which are above or inside the Ichimoku cloud.
Should the sentiment analysis and your gut feeling support this scenario, the Invest Diva’s strategy for NZD/USD is buying at either 0.82289 (38% Fibo) or 0.81294 (50% Fibo,) and setting a limit to exit the market at the next higher Fibonacci level at 23% or 38% respectively.
* Forex Dance Floor is an Invest Diva metaphor used both in the book Invest Diva’s Guide to Making Money in Forex published by McGraw-Hill, and the Forex Coffee Break with Invest Diva’s education courses.