Kiwi dollar rallied early morning despite a weaker than expected Retail Sales number. Q3 results came in at 0.3% amidst expectations for a 0.9% gain, which in itself is lower than previous quarter’s 1.5% (revised lower from 1.7%). The only reason why price managed to defy gravity in this case was due to USD weakness following Yellen’s dovish statements, which drove Gold and Stock prices higher, while sinking USD and Yields at the same time.
The only difference between NZD/USD and other major USD pairs was the strong bullish magnitude that followed. Prices gained 1.4% from peak to trough post Yellen’s statements, much higher than EUR/USD and GBP/USD which both gained around 0.2%, or neighbor AUD/USD which jumped 0.64% during the same period. This highlights the strong underlying bullish strength in NZD due to forward rate expectations. This bullish strength wasn’t visible in NZD/USD in recent days as the broad market narrative was all about Fed tapering in December following a stupendous NFP print on Friday, hence it is no surprise that NZD/USD pushed up so aggressively as all the pent up bullish pressure has been building up.
However, prices did not stay up for long, and we are looking at NZD/USD pushing down aggressively currently. This decline is not unique to NZD/USD, and all the aforementioned USD pairs are all suffering declines as well. Unfortunately for NZD/USD bulls, the decline experience in NZD/USD is also much greater than the other currency pairs, with Kiwi giving up all the gains earned earlier. This is a good sign that the December Tapering narrative is back, which is why the losses mirror the gains exactly across board – even in NZD/USD which has a bullish disposition.
If the above assertion is true, then we could actually see bearish pullbacks in Gold and Treasury prices (stocks indices are a little bit tricky right now and direction is less clear considering that we are forging record highs in both S&P 500 and Dow 30). This would also mean that NZD/USD will revert back lower to Tuesday/Wednesday levels, where technicals agree – with prices breaking the rising trendline and Stochastic pointing firmly lower. Beyond there may be difficult as Stochastic readings are close to Oversold region, while NZD’s inherent bullishness may still provide resistance against the strengthening of USD.
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