Sive Morten
Special Consultant to the FPA
- Messages
- 18,655
Second research will on FX as well, guys. This time it will be dedicated to NZD. You'll understand why I've chosen this currency through research below...
Some fundamentals in the beginning:
(Reuters) - New Zealand Prime Minister Jacinda Ardern said on Tuesday she was “not at all” concerned by a recent fall in the New Zealand dollar.
The local dollar has fallen more than 5 percent since September's election, amid concerns about the Labour-led government's planned policy changes including plans to review the central bank act.
The currency rose around a quarter of a U.S. cent on Tuesday after the government said there were no plans to include the kiwi in a review of the Reserve Bank Act.
“These are fluctuations that are well within the rate of fluctuations we have over a six-month period,” Ardern told Reuters. “Certainly I think probably where we are at exporters wouldn’t be complaining right now either.”
Ardern also said it was too early to say whether member states would achieve an agreement on the Trans-Pacific Partnership trade deal this week.
The 11 TPP members had set a goal of reaching broad agreement on the pact on the sidelines of the Asia-Pacific Economic Cooperation meeting in Vietnam.
“Certainly I know that there are a number of member states who would be seeking that, at this stage I can’t say whether that’s likely or not. I think we’ll have a good indication once we are on the ground.”
For the New Zealand dollar, analysts have marked down their forecasts to reflect recent slippage in the currency amid concerns the country’s new left-leaning Labour government would pursue policies less welcoming to foreign investment.
The median projection was for the kiwi to stand at $0.7000 in one month, down from $0.7200 in the previous poll. It was also seen staying at $0.7000 right out to November next year.
The currency was last trading at $0.6919, having slid from as high as $0.7557 in July to as deep as $0.6818 in October.
It got a mild boost last week when the Reserve Bank of New Zealand (RBA) nudged up its inflation forecasts in response to the fall in the currency and to Labour’s plans for more government spending.
“We do see the risk that the NZD recovers some of its recent election-related losses as structural factors such as the high terms of trade will continue to be supportive,” said CBA economist Nick Tuffley.
Yet he also predicts the RBNZ will not raise interest rates until the first quarter of 2019, a marked contrast to the U.S. Federal Reserve which has penciled in a hike for December and three more next year.
COT Report
NZD right now stands a bit overextended to the downside by recent CFTC data. Ultimate bearish position was fixed in 2015 around -20K contracts, but it was just once for decade. Now it stands for -12K. In general 13-15 K contracts of bearish position should be treated as "near extreme". Besides, for decade NZD was net bearish not too long.
Now net short position is growing as open interest. Open interest also stands near record levels. Thus, sentiment analysis shows that NZD could drop a bit more, but as it stands near saturation - this is perfect combination for upside bounce on monthly and weekly time frames. That's why it is interesting right now.
Technicals
Monthly
In fact, we've taken a look at kiwi not too far - approximately month ago. But situation has changed drastically since then. Even on monthly chart.
Bearish reversal candle, was supported by big political shifts and led NZD to more drop than just retracement that we've talked about initially.
As a result market has erased major bullish AB=CD pattern, as price has dropped below "C" point
Trend has turned bearish on monthly chart, overall drop looks really strong. In fact we've got bearish reversal swing. Taking in consideration CFTC data - now there is just one question - where NZD will stop and turn to upside retracement.
Monthly chart gives not much inputs on this sub. As NZD is not at oversold here, we have only one suggestion - may be 5/8 Fib support @ 0.6670 will hold it?
Weekly
This time frame brings a bit more info. Previously we already have mentioned major AB-CD target that stands around 0.6750 area. It also coincides with MPS1.
Reaction on OS was mild and market has dropped further. Now it stands at minor 5/8 Support, while major monthly support stands low. AB-CD target stands slightly higher than Fib level, but for weekly chart 50-70 pips is not a big distance and we probably could speak on 0.6670-0.6750 area where bullish reversal pattern could be formed:
Daily
On daily time frame trend also has turned bearish, our flag pattern has been broken down. Now market stands in upside reaction to reaching of OS area.
At the same time, price stands rather close to completion of AB-CD target. If we plot extensions of flag retracement, then you could see that AB-CD target stands between 1.27 and 1.618 extensions.
So, NZD should start some preparation to finalizing of downward action. It means that some bullish pattern could start forming here. As market already has dropped below previous lows we will not get butterfly, but we could get 3-Drive, or even reverse H&S.
Next week could start from minor retracement, but it should stand inside last swing down to keep scenario valid:
Intraday
So, guys, here we need just watch what will happen. If market will drop immediately and follow to 1.618 extension - in this case H&S could be formed. While Monday will start with retracement, it also could be some other pattern, such as 3-Drive or just wedge.
On intraday chart it seems that retracement should be somewhere to 0.69-0.6925 area. This is K-resistance and WPR1. Pivot resitsance 1 also will be good indicator of sentiment. If it will hold upside action then indeed it will be just retracement.
That's being said, downside action should continue as major daily AB-CD target has not been met yet. On Monday we're watching for minor retracement up, somewhere to 0.69-0.6925.
Conclusion:
NZD now looks interesting as price has made major shifts on monthly chart. As sentiment as fundamental background mostly support some relief after long collapse. We think that it's time to start monitor bullish reversal patterns around 0.6670-0.6750 area.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
Some fundamentals in the beginning:
(Reuters) - New Zealand Prime Minister Jacinda Ardern said on Tuesday she was “not at all” concerned by a recent fall in the New Zealand dollar.
The local dollar has fallen more than 5 percent since September's election, amid concerns about the Labour-led government's planned policy changes including plans to review the central bank act.
The currency rose around a quarter of a U.S. cent on Tuesday after the government said there were no plans to include the kiwi in a review of the Reserve Bank Act.
“These are fluctuations that are well within the rate of fluctuations we have over a six-month period,” Ardern told Reuters. “Certainly I think probably where we are at exporters wouldn’t be complaining right now either.”
Ardern also said it was too early to say whether member states would achieve an agreement on the Trans-Pacific Partnership trade deal this week.
The 11 TPP members had set a goal of reaching broad agreement on the pact on the sidelines of the Asia-Pacific Economic Cooperation meeting in Vietnam.
“Certainly I know that there are a number of member states who would be seeking that, at this stage I can’t say whether that’s likely or not. I think we’ll have a good indication once we are on the ground.”
For the New Zealand dollar, analysts have marked down their forecasts to reflect recent slippage in the currency amid concerns the country’s new left-leaning Labour government would pursue policies less welcoming to foreign investment.
The median projection was for the kiwi to stand at $0.7000 in one month, down from $0.7200 in the previous poll. It was also seen staying at $0.7000 right out to November next year.
The currency was last trading at $0.6919, having slid from as high as $0.7557 in July to as deep as $0.6818 in October.
It got a mild boost last week when the Reserve Bank of New Zealand (RBA) nudged up its inflation forecasts in response to the fall in the currency and to Labour’s plans for more government spending.
“We do see the risk that the NZD recovers some of its recent election-related losses as structural factors such as the high terms of trade will continue to be supportive,” said CBA economist Nick Tuffley.
Yet he also predicts the RBNZ will not raise interest rates until the first quarter of 2019, a marked contrast to the U.S. Federal Reserve which has penciled in a hike for December and three more next year.
COT Report
NZD right now stands a bit overextended to the downside by recent CFTC data. Ultimate bearish position was fixed in 2015 around -20K contracts, but it was just once for decade. Now it stands for -12K. In general 13-15 K contracts of bearish position should be treated as "near extreme". Besides, for decade NZD was net bearish not too long.
Now net short position is growing as open interest. Open interest also stands near record levels. Thus, sentiment analysis shows that NZD could drop a bit more, but as it stands near saturation - this is perfect combination for upside bounce on monthly and weekly time frames. That's why it is interesting right now.
Technicals
Monthly
In fact, we've taken a look at kiwi not too far - approximately month ago. But situation has changed drastically since then. Even on monthly chart.
Bearish reversal candle, was supported by big political shifts and led NZD to more drop than just retracement that we've talked about initially.
As a result market has erased major bullish AB=CD pattern, as price has dropped below "C" point
Trend has turned bearish on monthly chart, overall drop looks really strong. In fact we've got bearish reversal swing. Taking in consideration CFTC data - now there is just one question - where NZD will stop and turn to upside retracement.
Monthly chart gives not much inputs on this sub. As NZD is not at oversold here, we have only one suggestion - may be 5/8 Fib support @ 0.6670 will hold it?
Weekly
This time frame brings a bit more info. Previously we already have mentioned major AB-CD target that stands around 0.6750 area. It also coincides with MPS1.
Reaction on OS was mild and market has dropped further. Now it stands at minor 5/8 Support, while major monthly support stands low. AB-CD target stands slightly higher than Fib level, but for weekly chart 50-70 pips is not a big distance and we probably could speak on 0.6670-0.6750 area where bullish reversal pattern could be formed:
Daily
On daily time frame trend also has turned bearish, our flag pattern has been broken down. Now market stands in upside reaction to reaching of OS area.
At the same time, price stands rather close to completion of AB-CD target. If we plot extensions of flag retracement, then you could see that AB-CD target stands between 1.27 and 1.618 extensions.
So, NZD should start some preparation to finalizing of downward action. It means that some bullish pattern could start forming here. As market already has dropped below previous lows we will not get butterfly, but we could get 3-Drive, or even reverse H&S.
Next week could start from minor retracement, but it should stand inside last swing down to keep scenario valid:
Intraday
So, guys, here we need just watch what will happen. If market will drop immediately and follow to 1.618 extension - in this case H&S could be formed. While Monday will start with retracement, it also could be some other pattern, such as 3-Drive or just wedge.
On intraday chart it seems that retracement should be somewhere to 0.69-0.6925 area. This is K-resistance and WPR1. Pivot resitsance 1 also will be good indicator of sentiment. If it will hold upside action then indeed it will be just retracement.
That's being said, downside action should continue as major daily AB-CD target has not been met yet. On Monday we're watching for minor retracement up, somewhere to 0.69-0.6925.
Conclusion:
NZD now looks interesting as price has made major shifts on monthly chart. As sentiment as fundamental background mostly support some relief after long collapse. We think that it's time to start monitor bullish reversal patterns around 0.6670-0.6750 area.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.