About two weeks ago I entered a short position on NZD/USD pair with bearish targets at 0.7460 and 0.7350 in extension. While many of my forex trading followers exit the trade on April 1st at the first target and moved on with 140 pips earned, I decided to stay in for another round aiming the second target. Here are the reasons why.
1- USD Strength is back after dismal NFP Reading
Had the US jobs report been as strong as the previous ones last Friday, I would have reached and surpassed my second target by the end of the trading day on Friday. However, the unexpectedly low Non-Farm Payrolls number pushed the US dollar down as investors around the world got worried about actualization of a Fed rate hike. This got me worried as well on Friday, but after looking at the report more closely, I calculated that the USD shall go back on it’s strength track for the time being.
I stress on short term scenario for USD dollar strength because as it is discussed by Andrea Wong and Lucy Meakin from Bloomberg, it could actually hurt the US economy growth.
However this strength in USD should be enough to drag the NZD/USD pair low enough to reach my new target at 0.73500.
2- Lack of Bullish Sentiment in Kiwi
Taking a look at the NZD/USD daily chart (or how we call it at Invest Diva, the Daily Forex Dance Floor) you’d notice that the pair is losing it’s bullish momentum after rebounding towrads the 23% Fibonacci level and the upper level of Bollinger Bands. It now appears that the pair is trapped inside a Symmetrical Triangle Pattern of which its lower band extension falls perfectly on the 4 year low of 0.73500.
3- Kiwi at Record Levels Against Aussie
We just heard from the Reserve Bank of Australian who decided to hold AU cash rate at 2.25%, defying market expectations another rate cut. This did led into a temporary jump in the Aussie dollar against all its major counterparts (a little earlier than the announcement actually, which strikes a question of whether the decision was leaked) but it already have found sellers and started to reverse again moving into New York session.
RBA has mentioned in its official statement that further easing may be needed down the road.
The New Zealand dollar is continuing its record-breaking run against the Australian dollar in recent weeks and was last night closing in on parity.
However, the ASB Bank in its Kiwi Dollar Barometer survey said the kiwi was likely to continue to ease against the US dollar. According to the New Zealand Herald, the bank said there was a broad-based belief among businesses the NZ dollar would decline further over coming year.