By: Christopher Lewis
The Kiwi dollar had a grand day on Tuesday as the “risk on” trade appeared globally. The first real trading day of the year often will bring a lot of money into the markets as money managers are looking to put money to work, and they are overwhelmingly “long only” funds, which mean that they can only buy stocks, commodities, or other financial instruments. In other words, they are positively biased.
The New Zealand dollar will often get a lift during bullish times for commodities, and the Tuesday session was no different. The gold, grain, and oil markets all rose. The Kiwi is often a nice “general commodity” currency as it tends to follow the overall sentiment on balance. The country of New Zealand tends to be especially sensitive to the agricultural futures as the country is the supermarket to much of Asia. Cattle futures, Milk futures, and the grain futures were all healthy on Tuesday, making a perfect form for the Kiwi.
The recent run has been fairly impressive in this pair, and it does tend to run hard from time to time. However, the volumes are still low, and this needs to be taken into account if you are trading for anything more than a few hours. The pair is also headline sensitive, and bad news can sink it like a stone. Because of this, the New Zealand dollar can be tricky at times. It is also one of the least liquid pairs of the G-10 currencies.
Technical Going Forward
The area that the NZD/USD has travelled to for the Tuesday session is the start of a massive resistance level. The 0.79 to 0.80 levels complete a 100 pip thick resistance area that has produced reactions before in this pair. It is hard to think that the economic situation in the world has changed so much over the last couple of days that we are about to start a massive bullish move in the riskier currencies, but the Kiwi is favored for those being overly optimistic.
.jpg "NZD/USD Daily 1/4/12")
I believe that the area just above will offer a selling opportunity in the near future. The 0.80 level is a big one for this pair, and a daily close above it would prove me wrong, and show real strength in this pair. I am personally waiting to see how the next day or two closes in order to place the next order in this pair. A shooting star somewhere between here and 0.80 on the daily chart would have me selling. The gap form the beginning of November still hasn’t been closed completely, something that is very rare in Forex as well. This is another reason for my bearish sentiment in this pair. Overall, I anticipate the 0.80 and 0.75 levels to be the boundaries in the next few weeks if not months.