Play of the Day: GBPUSD Breakout & NZDUSD Oppurtunity

Moving away from the EU, we are taking a look at the GBPUSD and NZDUSD.

GBPUSD Breakout

We highlighted earlier in our Forex Trading Analysis the potential of a GBPUSD breakout but wanted to give it more context in our trading ideas section. 

For much of May, the GBPUSD was looking like a winner as it climbed about of its 1.56-1.60 trading range to hit 1.6400.  However, after 1.6000 support failed, the pair quickly went into a nose drive and fell hard to under 1.5300.  During the drop, the GBPUSD never managed to log any meaningful support levels. That fact was surprising at it appeared very well bid when it was trading above 1.6000.  As such, the reemergance of GBPUSD support, at the same time as the EURUSD losing all of its weekend demand from the Spanish Bank Bailout reveals that the GBP is once again seeing a rotation of Euro's headed toward UK.  As this similar move led to the Pound being one of the strongest currencies in May, it is importnat to watch how strong the Pound trades now.

Based on the potential that was seen in the GBPUSD in May, the GBPUSD looks like a solid breakout play to the upside if it can trade above 1.5600.  As the chart shows below, the pair has failed at this point several times already.  Therefore, we wouldn't be buyers on any immediate move above 1.5600, but prefer to see the GBPUSD not only trade above 1.5600, but close above that level as well.

NZDUSD: Above its Start of the Week Upward Gap

The NZDUSD is trading to a new week high as it is above its earlier gap highs (see chart).  However, the RBNZ is holding their Interest Rate Meeting later tonight/early tomorrow morning (depending on where in the world you are).  As such, after hitting over bough levels earlier this week, the NZDUSD has stayed above its 20 period MA (green line) on the 1hr chart.  Therefore, if the RBNZ meeting goes dovish, it could trigger NZD weakness.  For us, that means shorting the pair if the 5 period MA (red line) drops below the 20 period MA.

Play of the Day : NZDUSD, AUDNZD & RBNZ

Yeah sure, the Fed is holding their FOMC Meeting today. You want to trade it, go ahead. While we love the volatility of every FOMC Meeting and believe it can set the upcoming trend in the Forex markets, trading during the news is usually not the easiest of all activities. At SwiftTick we are focusing on what could be a much simpler trade; the upcoming RBNZ Interest Rate Meeting.

This is why we are excited about this economic release

For the first five weeks of 2012, the NZDUSD was a big winner in the Forex markets, rallying over 8.0% at its highs. Similarly, was the AUDUSD which gained over 5.0%. However, the AUDUSD has since fallen back to around unchanged levels for the year. Triggering the fall in the AUDUSD has been talk of a slowdown in China’s economy, as well as rate cuts and “dovish” statements from the Reserve Bank of Australia. In contrast, the RBNZ has actually spoken about raising interest rates. As such, the NZDUSD continues to be holding up well and is still gaining around 4.0% for 2012. The pair’s weakness has been more of a result of overall dollar strength, than kiwi weakness.

Look to the past for the future

NZDUSD in 2012Using the AUDUSD as a guide, the NZDUSD could be similarly vulnerable to further selling if the RBNZ reverses its tone uses any “dovish” language during their statement. Any mention of a slowdown in New Zealand could be interpreted by Forex traders as the RBNZ’s way of saying they won’t hike rates anytime soon. On such a situation, the NZDUSD could see selling pressure take the pair back below 80.00.

AUDNZD Opportunity

Turning things around, if the RBNZ continues with their “hawkish” rhetoric, one possible longer term trade will be to short the AUDNZD. Such a position would take advantage of forecasts of higher interest rates in New Zealand, versus static, or lower rates in Australia. Also, with Forex traders always eager to apply carry trades at each opportunity, the kiwi could see higher demand from traders as it may be viewed as less volatile than the aussie. Also, by trading the AUDNZD instead of just buying the NZDUSD, Forex traders can remove US dollar risk from the trade, and won’t be exposed to randon Bernanke comments sending volatility higher.

*** While we are looking beyond the FOMC Meeting. We do believe that is should be factored in the NZD. As such, if today’s FOMC Meeting does send the US dollar falling, the overall move may make it hard to trade the NZDUSD. In such an environment, we would favor only trading the AUDNZD.

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