NZD/USD Bearish Channel in Force, NZ CPI on Tap
Matt Weller, CFA, CMT October 12, 2018 1:15 PM
Risk assets saw a respite from the relentless selling pressure in overnight trade as US stock market futures turned higher, but that rally may prove to be short-lived.
After opening higher by nearly 400 points from yesterday’s close, the Dow Jones Industrial Average just dipped back into negative territory as we go to press, ostensibly on headlines that President Trump may not meet with General Secretary Xi at the G20 summit. As I noted on twitter, today’s stock market close will be critical for sentiment heading into the weekend and into early trade next week.
In terms of the FX market, NZD/USD is a classic “risk-on” currency pairing. While the pair actually rose by about 50 pips over the last two days (primarily due to weakness in greenback), it remains in a longer-term downtrend defined by a 6-month bearish channel. With rates holding steady almost directly in the middle of the channel today, there’s no clear bias for intraday traders, but swing traders will be keeping an eye out for opportunities to enter new short positions:
Source: TradingView, FOREX.com
From a fundamental perspective, next week may start with a bang for the pair. Monday’s US session brings the latest retail sales reading from the world’s largest economy, followed by the (expected) release of the Treasury’s semiannual currency report. Then in Tuesday’s Asian session, traders will get their first look at New Zealand’s CPI figure for Q3; because this data captures price changes over an entire quarter (instead of the more common monthly data releases from other major economies), it tends to have a stronger impact on the kiwi.
For next week, traders will favor selling bounces toward the top of the bearish channel around 0.6600. Only a confirmed break of this barrier would flip the intermediate bias in the pair back to neutral. To the downside, bears may look to target this week’s lows at 0.6425, followed by the three-year low near 0.6350.
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