My Twitter followers are currently making money on Kiwi like a bomb! As you know, I was watching the pair for a break below 0.68 and today we just got that.
Forex NZD/USD Daily: Broke below a five year low below the Ichimoku cloud
Technical Analysis
The New Zealand dollar – US dollar pair (NZD/USD) has been rocking it reaching our bearish targets one after another. I finally spotted a definite bearish signal yesterday and jumped in a position targeting 0.6570. The pair remains below the Ichimoku cloud with the RSI heading straight at the oversold zone.
Sentiment Analysis
There was a bearish engulfing candlestick chart pattern formed on the daily chart on Tuesday which indicated a bearish sentiment.
Economic Points
New Zealand Side
The GDT price index will be released anytime today which shows the change in the average price of dairy products sold at auction. It’s a leading indicator of the nation’s trade balance with other countries because rising commodity prices boost export income. After the interest rate cut by RBNZ a couple of weeks ago, Mr. Kiwi had no choice but to head further south. We are likely to see further interest rate cuts coming up since in his accompanying statement, Wheeler admitted that subdued inflation and lackluster growth were the main factors that led them to decide that a rate cut was necessary. In such occasion, Mr. Kiwi will be GOIN’ DOWN!
There are a bunch of factors that support the idea of another interest rate cut for Mr. Kiwi. Keep in mind that New Zealand’s Q1 2015 economic data was so bad that it made some Kangaroos from the Land Down Under wanna cry.
Its GDP came in at a meager 0.2% for the quarter, lower than the estimated 0.6% expansion, while the previous period’s growth figure was downgraded from 0.8% to 0.7%.
Inflation was also considerably below expectation, as the CPI chalked up a worse-than-expected 0.3% decline for Q1, marking its second quarterly drop. Leading inflation indicators suggest that price levels could continue to tumble, with producer input prices decreasing by 1.1% and output prices falling by 0.9%.
Other than that, export levels have been weak, and consumers are lacking the confidence to shop more as they are probably anticipating possible layoffs due to New Zealand’s economic slow down and the downturn in manufacturing activity.
All in all, New Zealand’s economy seems to need further stimulus and a future rate cut could be in the pages of Mr. Kiwi’s book.
Before that happens, the New Zealand trade balance is scheduled to be released Thursday night at 11:45 PM GMT (beginning of Friday’s Sydney session). If the number beats expectations, the Kiwi correction could continue a little bit longer.
US Side
The ADP non-farm payroll data is just about to pop out followed by NFP numbers on Thursday at 12:30 pm GMT.
If the actual reading for the ADP report meets or beats expectations and the NFP report posts an improvement over the previous read, we can expect Ms. USA to dance up and push NZD/USD further down. But if the actual reading for the NFP report shows much weaker jobs growth, then there is a very good chance that the US dollar would not climb as much or perhaps even decline.
Other than this, with all the Greek crisis and its IMF default this morning, the risk-off sentiment could continue to make the US dollar a safe haven regardless of the NFP outcome.
With recent FOMC comments about two potential upcoming interest rate hikes within 2015, Ms. USA could get even stronger, dragging Mr. Kiwi down on the forex dance floor.
Trading Idea
Bearish below 0.68 targeting 0.6570.
Suggested stops and limits:
| Support Levels | Turning Point | Resistance Levels |
|---|---|---|
| 0.6836 | 0.7190 | 0.7190 |
| 0.6570 | 0.6982 | 0.7380 |
*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.
