By: Christopher Lewis
The NZD/USD had a strong day on Wednesday as the market bought up plenty of risk assets around the world. The Kiwi will almost always be a great barometer of risk sentiment as it is so highly tied in with commodities. In fact, New Zealand can be thought of as the “grocery store” for Asia, as it has so many agricultural commodities that it exports.
The agricultural markets aren’t as easy to follow for many Forex traders, (When was the last time you watched Milk Class 3 futures?) but the Kiwi will move with the general “attitude” of commodities. As they often will move in concert, the Kiwi will benefit. As usual, this was the case during the session.
However, the New Zealand CPI numbers came out after the US session, and the Kiwi sold off in response to them. The expected number for the 4th Quarter Consumer Price Index was 0.4%, but actually came in at -0.3%, which was a massive miss. This sold the currency off as traders see it as a sign of weakness in the economy. Because of this, the candle is closing in the shape of a shooting star, albeit just above the much watched 0.80 handle.
Stars and Lines
This pair has been one that seems to focus on lines. There are several support and resistance lines that I have been watching, but by far the most important one has been the 0.80 level. This area has been resistive in the past, and is also a large round number and those typically produce at least some kind of response. At the end of the Tuesday session, I saw we closed right at it, but at the top of the range for the session. Because of this, when I saw the pair break above the level on Wednesday, I felt pretty good about the momentum to the upside.
.jpg "NZD/USD Daily 1/19/12")
However, after the numbers came out, the sell off produced this shooting star, and one has to be very cognizant of the 0.80 level being so important. The number is an area – not a specific line, and as a result, we can drop form here still. The 0.7850 level looks supportive because of the hammer from last week, but the shooting star suggests that we may have more work to do to get overly bullish. With all of this conflicting information – this suggests that consolidation may still be in the cards.
On a break of the top of the Wednesday session – this would be a “busted” shooting star, and that would be a massively bullish signal. However, a break of the bottom is bearish. (With support just below.) In other words, a market that looked simple suddenly might not be. I am looking for short-term scalps using the 0.8070 level as the top of consolidation, while the 0.79 level will be the bottom.