As usual, the top down approach for analyzing currency pairs provide some useful insights particularly when it comes to trend identification. For the past 2 weeks, the trend has been down and reversals happening at important support turned resistance levels at 0.7350-0.74 in the weekly chart. When that level was reached there was some obvious resistance for any move up and we heard from Graeme the then governor of RBNZ saying how hurtful the bullish kiwi was on New Zealand’s exports and crucial of all, how it affected inflation as 50% of reported inflation was contributed by non-tradable inflation which was directly influenced by foreign exchange differentials. Remember the third quarter was filled the housing sector news and soaring house prices which despite this demand couldn’t spur inflation as it remained below the RBNZ target of 1.5%. From there on, the kiwi retraced and moved lower.
Technically, in the weekly chart, reversals is happening at around 50% retracement level and if anything, price should retrace lower past the 1.0 level at 0.62 and perhaps towards the 0.47 level represented by the 1.68 Fibonacci extension level. It is an assurance that price will trend down as we approach the US presidential election and potentially predicate a Fed rate hike in December all because of the nature of this month’s candlestick. It’s a strong bearish engulfing candle with price action quickly taking back all the gains from June.
With this, it was no surprising that the NZD ceded ground with the deterioration of Chinese fundamentals as Trade balance came in lower than expectations at $42B from last month’s $52B. This revealed that there was some contraction in the economy. With how the charts are behaving, I expect stellar USD fundamentals throughout the next trading months and price to be pushed lower.
So today we trade as follows:
Sell at all highs in the 15 minute charts if you are a day trader and for long term investors, look at the 4HR chart and sell when there is any form of retracement back to the 0.708 resistance zone-check the attached 4HR chart or when there is a strong breakout below the 0.7030 level. These two scenarios will be good entries.
This will pan out as follows:
Sell Limit: 0.7065-0.7080, entries vary depending on when there is a stochastics overbought and a confirming candlestick in the 15 min chart. Check the attached 15 min chart for more details.
Stop Loss: 40 pip stop loss
TP: Trail your profits.
For today, check out the Crude Oil inventories and trade the USDCAD, there will be a probable break above that long term resistance zone at 1.3350. There are expectations for more inventories this week with the consensus coming in at 0.4M. Check this release at 15:00 GMT and it comes after Unemployment claims set at NY open with consensus at 252K from last week’s 249K.
So have a good trading day and may the pips be with you.
If you have any questions, hit my inbox here at Forex.Today or you can alternatively add me on Slack. Username: @akoyofinancials, we can share many ideas on any currency pair, commodity or indices.