Fed Rate Cut NZDUSD Trade (3-6 Months)
Updated
A Fundamental and Weekly Trend Analysis
Much of this trade is based off of US Federal policy, and on counter trend trading the gross short interest on NZD. On June 20th, the Fed's rate is effectively at 2.4%. The speculative net positions short are increasing on NZD and AUD.
investing.com/economic-calen......
investing.com/economic-calen......
Asian currencies are hurting as well. This trading point takes inspiration from a tweet storm of fundamental statistics posted by @Trinhnomics. twitter.com/Trinhnomics/status/1......
Now, compared to the Fed's target low rate of 2.25%, or just a 15 basis point drop , Jerome Powell has said in a recently aired interview that he wants to keep the interest rate at least above 2%.
At 18 Minutes, he addresses the issues that Trinhnomics mentions the growth problems with Asian countries that use lots of USD, and goes on to talk about wanting to stay above 2%. youtube.com/watch?v=XXX4jgBj......
President Trump wants a cut, and one in the range of 2-2.25% could satisfy him politically. Trump wants to hit new ATH in the stock market, so lets say above 3000 SPX . A cut or two into that range could take the SPX to those levels.
The next 2 Fed meetings will be on July 30th-31st and September 17th-18th.
The trade goes as follows:
---
Enter a position long before July.
If the Fed Rate decision is to cut keep the trade, and anything else should end this trade.
If the cut was not sufficient and did not help the hurting economies dependent on the dollar, or help Trump's political economic targets, there may be another cut coming in Sept. To clarify, "Help" for those Asian countries just means that their investments are either less negative than they are now, or even positive. With that in mind, a second cut could cause a breakout in price to break 2019 NZD highs, and possible short-term reactions could cause price to go higher than 0.715 before a third Fed meeting unless the USD is preforming poorly for some reason.
NZD speculative net positions will likely start to show signs of improving. As the effects of cuts to help the Asian countries receive investments again would help NZD investments as well.
---
As far as Technical Analysis goes, there are enough signals in my system to justify a long trade. So lets establish this trade's entry and exits.
This trade's entry, for technical reasons, is based on the TD Sequential Weekly Sell 1 above a Sell 2. I entered a buy signal on the daily, and the fact that if the weekly closes well then I can take thing from a swing trade into a longer term, fundamental trade.
We are approaching the 50SMA (in red) and a close and open above it would be a nice bullish signal. Though, I am preemptively entering because I think that this signal is lagging compared to the fundamental arguments made earlier. I expect that upon increased speculation of a Fed Rate cut, that we will begin trading at a price above this MA.
There is resistance at the 200SMA (in blue), which also correlates coincidentally with the mean of the inside-pitchfork (the very thick red line). This area (0.69700) was previous price resistance at the beginning of 2019. If those highs are broken, then the likelihood of meeting or breaking the 2018 highs becomes a new option.
The current environment technically is different also based on the lows. 2017 had a low of 0.67800, and 2018 made a new low of 0.64250. Assuming that we are not going to break the low made in 2018, then we have made a higher-low in 2019 at the price of 0.64800. This will be our reasonable stop loss.
Whether we are rejected from 2019 high, or break through it will be based on volume indicators: the OBV and Accum/Dist. Volume above the red line, which is drawn back to 2013, has provided significant resistance to NZDUSD . So, because we have touched this line multiple times since 2017, it seems like the NZDUSD volume traded will at least take us back to that red line again. A failure to break this red line on the volume indicators, while price is inside of the target price box (drawn in red inside the take profit green triangle), the likelihood of a reversal at that point is likely.
This leaves us with 2 take profit price levels, thus 2 opportunities to exit this trade if it pans out. This is shown by the 5.6% and 3.6% price range arrows respectively.
Finally, the SMI Ergodic Oscillator, a variation of the RSI Stoch , should go up if the "momentum," or price action, of this move also goes up. SMI is more of a reversal indicator, and I use it in conjunction with the TD Sequential 9 reversals. If you back test the last 3 times we were over or under sold on the SMI and when TD 9s were signaled at the same time, we had successful weekly reversals on NZDUSD . (except for in late 2017 where SMI failed to go oversold, and therefore, did not give a signal.)
So, for the SMI, I am looking for it to at least reach the red line, or prior high, in conjunction with the volume indicators not breaking their red lines. That would help with confirmation for a future reversal. Though, if SMI were to go oversold, then I'm looking for a TD 9 reversal with volume still below their red lines. If volume breaks out above their lines, it would be best to ignore SMI if it's oversold and assess any new fundamental trading information.
The maximum this trade could reach before Jan of 2020 is 400 pips, but it's unlikely. 240 pips is most likely, while anywhere between 240 and 380 pips is expected so long there are 2 Fed Rate cuts with long speculation. The risk is 160 pips, and the trade should take between 3-6 months.
Much of this trade is based off of US Federal policy, and on counter trend trading the gross short interest on NZD. On June 20th, the Fed's rate is effectively at 2.4%. The speculative net positions short are increasing on NZD and AUD.
investing.com/economic-calen......
investing.com/economic-calen......
Asian currencies are hurting as well. This trading point takes inspiration from a tweet storm of fundamental statistics posted by @Trinhnomics. twitter.com/Trinhnomics/status/1......
Now, compared to the Fed's target low rate of 2.25%, or just a 15 basis point drop , Jerome Powell has said in a recently aired interview that he wants to keep the interest rate at least above 2%.
At 18 Minutes, he addresses the issues that Trinhnomics mentions the growth problems with Asian countries that use lots of USD, and goes on to talk about wanting to stay above 2%. youtube.com/watch?v=XXX4jgBj......
President Trump wants a cut, and one in the range of 2-2.25% could satisfy him politically. Trump wants to hit new ATH in the stock market, so lets say above 3000 SPX . A cut or two into that range could take the SPX to those levels.
The next 2 Fed meetings will be on July 30th-31st and September 17th-18th.
The trade goes as follows:
---
Enter a position long before July.
If the Fed Rate decision is to cut keep the trade, and anything else should end this trade.
If the cut was not sufficient and did not help the hurting economies dependent on the dollar, or help Trump's political economic targets, there may be another cut coming in Sept. To clarify, "Help" for those Asian countries just means that their investments are either less negative than they are now, or even positive. With that in mind, a second cut could cause a breakout in price to break 2019 NZD highs, and possible short-term reactions could cause price to go higher than 0.715 before a third Fed meeting unless the USD is preforming poorly for some reason.
NZD speculative net positions will likely start to show signs of improving. As the effects of cuts to help the Asian countries receive investments again would help NZD investments as well.
---
As far as Technical Analysis goes, there are enough signals in my system to justify a long trade. So lets establish this trade's entry and exits.
This trade's entry, for technical reasons, is based on the TD Sequential Weekly Sell 1 above a Sell 2. I entered a buy signal on the daily, and the fact that if the weekly closes well then I can take thing from a swing trade into a longer term, fundamental trade.
We are approaching the 50SMA (in red) and a close and open above it would be a nice bullish signal. Though, I am preemptively entering because I think that this signal is lagging compared to the fundamental arguments made earlier. I expect that upon increased speculation of a Fed Rate cut, that we will begin trading at a price above this MA.
There is resistance at the 200SMA (in blue), which also correlates coincidentally with the mean of the inside-pitchfork (the very thick red line). This area (0.69700) was previous price resistance at the beginning of 2019. If those highs are broken, then the likelihood of meeting or breaking the 2018 highs becomes a new option.
The current environment technically is different also based on the lows. 2017 had a low of 0.67800, and 2018 made a new low of 0.64250. Assuming that we are not going to break the low made in 2018, then we have made a higher-low in 2019 at the price of 0.64800. This will be our reasonable stop loss.
Whether we are rejected from 2019 high, or break through it will be based on volume indicators: the OBV and Accum/Dist. Volume above the red line, which is drawn back to 2013, has provided significant resistance to NZDUSD . So, because we have touched this line multiple times since 2017, it seems like the NZDUSD volume traded will at least take us back to that red line again. A failure to break this red line on the volume indicators, while price is inside of the target price box (drawn in red inside the take profit green triangle), the likelihood of a reversal at that point is likely.
This leaves us with 2 take profit price levels, thus 2 opportunities to exit this trade if it pans out. This is shown by the 5.6% and 3.6% price range arrows respectively.
Finally, the SMI Ergodic Oscillator, a variation of the RSI Stoch , should go up if the "momentum," or price action, of this move also goes up. SMI is more of a reversal indicator, and I use it in conjunction with the TD Sequential 9 reversals. If you back test the last 3 times we were over or under sold on the SMI and when TD 9s were signaled at the same time, we had successful weekly reversals on NZDUSD . (except for in late 2017 where SMI failed to go oversold, and therefore, did not give a signal.)
So, for the SMI, I am looking for it to at least reach the red line, or prior high, in conjunction with the volume indicators not breaking their red lines. That would help with confirmation for a future reversal. Though, if SMI were to go oversold, then I'm looking for a TD 9 reversal with volume still below their red lines. If volume breaks out above their lines, it would be best to ignore SMI if it's oversold and assess any new fundamental trading information.
The maximum this trade could reach before Jan of 2020 is 400 pips, but it's unlikely. 240 pips is most likely, while anywhere between 240 and 380 pips is expected so long there are 2 Fed Rate cuts with long speculation. The risk is 160 pips, and the trade should take between 3-6 months.
Note
Some news today about how Gold fell 1% due to the possibility of no fed rate cut in July: uk.reuters.com/article/global-precious/precious-gold-sheds-over-1-as-bets-for-big-fed-rate-cut-fade-idUKL4N23X3E5Note
A daily candlestick view of the chart for added clarity: Note
Gold in NZD, compared to the NZD FX index, looks over extended. Though, I have no reason to say right now if it will come down yet: Note
From the Reuter's article posted earlier, with relation to this Gold and NZD index compared YTD chart:“In gold, people were looking for a reason to sell some just because over the past week and a half gold has gone up exponentially. It had that break down and then kept on running,” said Michael Matousek, head trader at U.S. Global Investors.
Note
“Prices should hold and continue to trend higher, unless there is some resolution on (U.S.-China) trade issues.”So then, if no resolution is met, a Fed rate cut would seem to me as more likely to happen in order to compensate/continue investment in USD denominated assets.
Note
idea has been moved over here:
Joe Baus, bausbenchmarks.com
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