Trading opportunities for currency pair: a pinbar has formed on the daily timeframe. As part of a correction, it's likely there'll be some short-term growth. This should start following a break of 0.6490 with a 0.6570 target. After this, we’ll need to see what the market comes up with. If things go as usual, after a break in the trend line, the price should return back to it. In our case, it's towards 0.6685. If the sellers fully close Friday's candle on Monday, the NZDUSD growth scenario will be cancelled out. In this case, we should expect a weakening of the NZD to 0.6235.
The first half of January ended up not so good for commodity currency currencies. The USD dropped against the JPY and EUR and strengthened significantly against the AUD and NZD.
Falling oil prices and the Chinese stock market crash had a negative effect on currencies. Due to this, the NZD/USD is down 5.47% since the start of the year to 0.6436, with Brent down 22.54% to $29.20 and the Shanghai Composite falling 17.97% to 2,900.97.
China has been undergoing capital flight and the state had been trying to stabilise the market situation via the use of mechanisms which bring trading to a halt, before deciding against their use. The Bank of China has spent over $512.6 billion USD from its gold reserves on stabilising the country’s financial markets. Devaluation can’t be avoided. The regulator is likely to allow the CNY to fall further until the situation on all financial markets improves.
Other than China and oil, the GDT Price Index for dairy production is having a negative effect on the New Zealand dollar. The last Global Dairy Trade auction on 5th January saw the GDT Price Index fall by 1.6% in comparison with the auction’s value on 15th December, 2015 to 718. Dairy is the main export produce of New Zealand.
My selection of NZD/USD hasn’t come from me choosing willy-nilly. An M-shaped pattern has formed on the daily time frame. The trend line of the correctional pattern which takes it beginnings from 23rd September was broken on 8th January. The rate dropped to the support from where it recoiled. In the end, a pinbar (hammer) formed.
A pinbar is a candle which indicates a possible bounce. Only, it’s not worth trying to make anything out of Monday because, after Sunday’s opening of the Saudi market, the Tadawul fell by 7% to 5,398.35 due to the Iranian sanctions being lifted. Today is Martin Luther King day (a day off) in the US.
With the sanctions lifted, Iran can now increase its daily oil exports by 500,000 barrels and within six or seven months this will be up to a million, as was announced by the Iranian oil minister Bijan Zaganeh.
As part of a correction, we are likely to see a short term growth. The growth scenario will start to come off after a break in 0.6490 with a 0.6570 target. Later we’ll need to keep an eye on what the market comes up with. If things go as usual, after a break in the trend line, the price should return back to it. In our case, it’s towards 0.6685.
If the sellers fully close Friday’s candle on Monday, the NZDUSD growth scenario will be cancelled out. In this case, we should expect a weakening of the NZD to 0.6235. Important events for the NZD include Chinese GDP (19th January) and the RBNZ convening (27th January).
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Forecasts which are made in the review constitute the personal view of the author. Commentaries made do not constitute trade recommendations or guidance for working on financial markets. Alpari bears no responsibility whatsoever for any possible losses (or other forms of damage), whether direct or indirect, which may occur in case of using material published in the review.
Director of Alpari's analytical department
Senior Alpari analyst
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