June 15, 2021 14:10:09
Hawkish Fed: Sell NZD/USD
The kiwi has born most of the brunt of the positive dollar momentum being the worst performing major month-to-date and on a one-month basis by some distance. We get Q1 GDP data Thursday morning first thing which may consolidate the solid fundamentals for NZD. But in the meantime, the Fed looms large and the potential for more unwinding of long kiwi positions and buying the greenback, if Jay Powell turns hawkish either perhaps changing the wording of the policy paragraph in the Statement or moving the dots to show an earlier rate rise.
NZD/USD is now at the bottom of its recent range just above 0.71, which it has been stuck in since the start of the year, give or take the odd higher flourish in late February and then lower move a month later. We are trading just below the bullish trendline from the pandemic low in March of last year and with the 50-day and 100-day SMAs above current prices near 0.72, it does look as though it is only a matter of time before sellers come out in force and the pair breaks lower. First target on the downside would be the 200-day SMA at 0.7031 which is close to the lower Keltner channel and then the March lows around 0.6943. Stops could be placed the other side of the trendline (or if Powell stays dovish as consensus believes, then go long as we should head back to the top of the range at least).
Dovish Fed: Buy NZD/JPY
Although the classic go-to risk-on/risk-off currency pair is AUD/JPY, the kiwi equivalent isn’t far behind. With the FOMC meeting expected to be a high risk event, if Powell sticks with dovish market expectations or even exceeds them by emphasising the soft employment reports for example, then the market will hunt for yield and buy NZD/JPY.
The pair sits just above the bullish trendline from the pandemic lows and also the 50-day SMA. If risk gets a Powell boost, prices will head towards previous cycle highs around 79.28 before the May high comes into view at 80.18. Place stops below this week’s lows if the hawks have won the Fed argument.
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