- The NZD/USD rallied a bit during the trading session on Friday, as we try to stay within the consolidation area that we have been in for a while.
- As we head into the weekend, the New Zealand dollar recovery is a good sign for risk appetite, even though a lot of other risk assets have had a lot of problems.
- The normal correlation between risk and the stock market in America could probably be somewhat ignored since there is $4 trillion worth of options expiring on Friday.
In this sense, the New Zealand dollar becomes even more interesting, because it could be a bit of a heads-up as to what risk appetite is doing. It’s also worth noting that the Thursday candlestick is extraordinarily bearish, so if we were to break down below it, or perhaps even the 0.63 level, it would show mass negativity that we could start to really take off to the downside. It’s worth noting that the 0.65 level above has offered significant resistance, and we did pull back from that level. The 0.65 level has a bit of “market memory” built into it, as we have tested it a couple of times from the bottom.
Try to Stay Out of the Market
If we were to turn out a break above the 0.65 level, then it’s possible that this market could go to the 0.68 level. However, if we break down then we could go as low as 0.60 without too many issues, especially if we get a lot of “risk behavior” around the world. It’s also worth noting that as we head into the holidays, liquidity may disappear and if that’s going to be the case, might be a market that simply trades in the little range that we are in right now. This is a very real possibility, just as a sudden headline could shock the market in one direction or the other as liquidity disappears.
The only way you can protect yourself this time of year is to do one of 2 things: you either stay out of the markets and wait until the holidays are over, or you trade smaller than usual position sizes. The New Zealand dollar won’t be any different, as it tends to be thrown around by risk appetite quite viciously.
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