Sun, Aug 07, 2022 @ 21:40 GMT
HomeContributorsFundamental AnalysisWhy The Dow Jones And The NZDUSD Appear Vulnerable

Why The Dow Jones And The NZDUSD Appear Vulnerable

Last night the S&P500 and the Dow Jones closed lower for a third straight session, providing an initial indication that the negative seasonal tendencies of September may again be set to play out.

The Dow Jones appears to be the most willing participant of the three key U.S. equity indices in exploring the downside after closing for a second day below the uptrend support from the March 2020 low.

In the F.X. space, the U.S dollar index has benefited from risk aversion buying the past three sessions. Should the U.S. dollar continue to rally on the back of further equity weakness, the NZDUSD appears vulnerable.

While New Zealand’s covid outbreak now appears under control enabling the government to lift restrictions across most of the country, possibly as early as this afternoon, Auckland is expected to remain in lockdown until late September.

Based on this, Goldman Sachs forecast the current lockdown to shave 3.5-4ppt off Q3 GDP. While this is unlikely to stop the RBNZ from raising rates in October and November of this year, it increases the risks that the NZDUSD may be susceptible to a pullback.

In recent weeks, the NZDUSD rallied over 5% to a high of .7170, above the 200 day moving average at .7118, and trend channel resistance at .7150 from the February .7465 high.

The move to the .7170 high appears to have been a false break higher out of a well-established trend channel. If U.S. stock markets continue to wobble, it would not be difficult to imagine some mean reversion in the NZDUSD back below .7000c.

As such, consider opening short NZDUSD positions near .7100c, with a stop loss placed above .7175 and looking to take partial profit near .7000c and again near .6950.
DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Featured Analysis

Learn Forex Trading