On Friday, other than BoJ monetary statements the Advance Quarterly GDP took centre stage. Many analysts expected the economy to expand by at least 2.6% for the second quarter but instead data showed that the economy increased by 1.2% sending the NZD into delirium and gaining close to 2.1% when the markets closed on Friday. With this release, the minority views it as a recession risk and caution against complacency. Yesterday, this bad news was followed through by weak ISM manufacturing PMI which printed 52.6 for July against 53.2 recorded in June. This represented a second consecutive month when Manufacturing sector data has been a slow down. Even though the 53.2 reading was the highest ever recorded in a year, economists expected stronger growth than what was released and this could surely affect retail sales data for this month. Today we also saw New Zealand’s Quarterly inflation expectations printing in at 1.7% representing a 1.65% inflation expectation for the 2 year outlook. Watch out for GDT Index today at 1430HRS, last week’s data was unchanged. In related news we saw the RBA slashing its benchmark interest rates to 1.5% citing inflation concerns and with this trend also visible in New Zealand we expect the same to happen in August 11.
So to the charts, the upward trend seems strong enough if we base our conclusion on the stochastics and it shall especially continue if it breaks through the resistance ceiling between 0.723-0.73 zones. We expected some effect on this currency pair and a trend lower should be observed as a trickling effect from the RBA decision to cut interest rates even though Price action has been trending higher after the release. Our strategy for today will be as follows:
In the 15 minutes chart, price is overextended because a whole candlestick formed outside the upper BB and the stochastics is trending in the overbought zone. We therefore wait for a confirmation candle and initiate a short as follows:
Sell Limit: 0.7215-0.722
TP: at your discretion but should a risk reward ratio of 1:2 or 3 is recommended
Have a good trading day