- The New Zealand dollar has rallied on Friday show signs of life as traders bet on more risk appetite.
NZD/USD
The New Zealand dollar has broken higher during the trading session on Friday as we are now well above the 0.5950 level. This is a market that now is challenging the 0.60 level and shows immense strength. It looks like traders out there banking on the idea that rates are going to drop in the United States and that should continue to propel the New Zealand dollar against the US dollar if it continues.
After all, most of what's been going on is people are betting that the Federal Reserve will have to stay tighter for longer and that, of course, means a stronger US dollar. Now people are starting to price in the idea that perhaps some type of peace breaks out, and with that being the case, I think short-term pullbacks open up the possibility of a certain amount of support near the 0.5950 level, but if we were to break down below there, we could drop down to the 0.59 level.
Market Volatility and the 10-Year Yield
Ultimately, this is a market that I think continues to see a lot of volatility, a lot of choppiness, and could be getting a little stretched. Watch the 10-year yield in the United States; it could give you a bit of a heads up as to where we are going. If we were to see the 10-year yield rise significantly and if we were to break down below the 0.5950 level, it should send this market much lower.
Ultimately, I think volatility is a major factor in most currency pairs, and again, you have to look at the US 10-year yield to get an idea as to where the US dollar should end up going, which of course is half the equation here. I do think we have gotten a little overdone, so I'm waiting to see if we do exhaust ourselves and pull back. It might be a nice shorting opportunity.
Potential signal: If we break below the 0.5950 level AND the US 10-year yield rises, I am selling with a 40 pip stop and a target of 100 pips.
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