ONE TO WATCH - NZD/USD
Weekly analysis of one key market direct from the trading floor. To take a position, it is only a click away in the Trader Radar watchlist on our trading platform.
Please note, all times are in AEST.
MONDAY, 20 MAY
Potential trade idea: buy NZD/USD at 0.8100, stop at 0.8045, target 0.8250.
We feel the pair has upside this week, and will look for a snap-back rally as it appears oversold. There is no technical evidence to suggest a reversal, so this is one for the brave and is a tactical idea based on what we expect from the Fed this week.
The pair has lost over 6% from late April as traders look to when the Fed will curb the pace of its QE programme, however we feel the market has become too optimistic about a potential announcement in its June meeting.
We look for Fed members Charles Evans (US trade today), James Bullard, Bill Dudley and Ben Bernanke to set the record straight.
The key though will be Bill Dudley (early Wednesday morning) and Ben Bernanke (midnight on Thursday), as they, along with Janet Yellen, are the most important Fed members and are all dovish. We therefore feel the market will push back their view of the Fed tapering QE.
The Fed minutes are released at 04:00 on Thursday and should also be closely followed and could be another source of uncertainty for the USD.
Any further weakness in USD/JPY, caused by the Finance Minister’s view that the moves in USD/JPY have been ‘corrected’ could see NZD/USD higher.
On Thursday we get the New Zealand trade balance figures.
We would look to place stops below the November 16 low of 0.8052, while potentially targeting the 38.2% retracement of the April to May sell-off.
We also expect a snap back in AUD/USD, especially as the market has swung to a net short position for the first time since June 2012.
This is a high risk idea and we are fighting a very strong tape, so our conviction is low. The other key risk is weakness in Chinese markets, while Charles Evans may deliver a hawkish rhetoric which will cause USD strength. Hence, we feel having a tight stop is prudent.
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