Our decision to hold interest rates doesn’t reflect our confidence on the economy that was what Yellen said in part of our speech. For market participants, that statement is hawkish as it comes. She further went on to state that the FOMC views of near term economic outlooks appears to be roughly balanced and even though judgment for further fed fund rate tightening has increased in recent times, the committees stays on hold and wait for further progressive evidence towards their ideal objectives. Mind you, in recent times the biggest contributor towards the overall GDP-the manufacturing sector-has been on a decline and lead to a 0.1% been shaved off the third quarter GDP growth projections to 2.9%. Overly, growth rate and inflation for 2016 was also revised down to 1.8% from 2.0% and 1.3% from 1.4% respectively. Additionally, employment conditions cooled off from the yearly average of 181K to 151K and was accompanied by moderate wage gains.
Also from the FOMC votes we can see that the number of hawks increased from the previous 1 to 3 and shifting the so called dot-plot to the pro-rate hike group. This phenomenal shift made the fed fund watchers to increase the probability of a 25bps increase in December meeting to 54%. December FOMC meeting comes in at a crucial time-just before the contentious US Presidential election. So, with this information we just have to follow what is happening at the charts and trade accordingly.
Graeme wheeler and the voting committee also decided to hold their interest rates stating that the stronger NZD was putting pressure on the economy because of Foreign exchange concerns while the housing boom inflation was putting financial stability at risk because headline inflation remained low because of non-tradable inflation which was relatively low and in-fact, this coming quarter CPI projection was expected to be low. Despite the bad news, growth was within the RBNZ projection. This statement from Graeme was bearish to me.
To the charts and this pair shows a bearish divergence in the 4HR charts and long upper wicks in the daily candles for the past two days. The bullish rally is strong and because of that bearish divergence in 4 HR chart I shall look to short the NZD in the 15 min charts depending on if yesterday’s highs is cleared or price reverses.
I will be looking at the 0.736 level and highs to see how price reacts and if it reverses, I shall go with the bear divergence and initiate a short.
Sell Limit: 0.736-0.7375
TP: 1:3 Risk reward ratio