Leaked IMF Memorandum
Despite the fact DJ30 short trade triggered the protective stop at the entry we were able to realize a fair profit from the trade. USDJPY short trade is also in a fair profit while our short trade in the FTSE100 is holding. We were projecting a possibility of further gains in the DJ30 before a moderate reversal in our prior weekly update but at the time of this writing we decide not to re-enter.
It appears a confidential IMF memorandum was leaked on Saturday, suggesting Greece will be unable to pay its loan (EUR 1.5 billion) to the IMF in June should Greece fail to reach an agreement with Europe. The main obstacles are around pension cuts and labour reforms, which is Greece is refusing to implement. We repeat our remark from the past week that tension between Greece and its creditors is likely to intensify as we reach the end May 2015. What we believe will ripple through the markets is a sovereign credit downgrade to China’s rating should the People’s Bank of China (PBOC) efforts fail to deliver. The HSBC Flash Manufacturing PMI will be closely eyed this week.
After observing the market we are refraining from shorting GBP as a technical entry has not been provided at the time of this writing. If we are correct, the daily chart is likely to mislead many technical traders. Our focus this week will be on a single currency, the New Zealand Dollar (NZD). We are perfectly aware many expect the Reserve Bank of New Zealand (RBNZ) to cut rates and Fonterra cutting its forecasts. However, we have noticed multiple technical patterns that suggest the Kiwi is due to correct higher. The currency pairs that appear to have a healthy Risk Ratio (RR) are NZDCHF and EURNZD.
NZDCHF Technical Analysis
We are focusing on NZDCHF daily chart for our technical strategy.
NZDCHF Daily Chart
Please click on the chart to enlarge:
NZDCHF Daily Chart, 17/05/15
After painting a Japanese reversal pattern (morning star), a firm support appears to be seen at 0.7678. On its it is insufficient but as we are noting multiple patterns that suggest NZD is due for moderate gains, we combine to the technical analysis the Swiss National Bank (SNB) threats to weaken the Swiss Franc (CHF). Although we are uncertain whether the SNB will take any actions in May traders may refrain from holding CHF, which may support the bullish stance for NZDCHF.
The protective stop based on the technical strategy is layered beneath the support, targeting 0.7120. The entry will be determined after 21:00 GMT.
EURNZD Technical Analysis
EURNZD is likely to offer a greater take profit due to its volatile nature but we do have some concerns as we will soon elaborate on..
EURNZD Daily Chart
Please click on the chart to enlarge:
EURNZD Daily Chart, 17/05/15
We would expect the 200 Daily Moving Average (DMA, in green) to act as a firm resistance where a re-test of the 200DMA is possible. Overbought indicators combined with negative divergence in the Relative Strength Index (RSI) concrete the bearish outlook for the Euro-Kiwi. Our concern is that we are uncomfortable with shorting the Euro. Due to EURUSD / USDCHF correlation, the optimal scenario would be heavy EUR selling while NZD will remain firm, which is likely to trigger a rally in NZDCHF, At the time of this writing we are favouring NZDCHF over EURNZD but we will make our final decision based on the trading strategies we have presented after 21:00 GMT. If EURNZD will gap higher that will minimize the protective stop and boost the risk ratio, which may tilt our decision towards EURNZD.
EURNZD Trade Details
Entry: market price (1.5358)
Take profit: 1.4815
Protective stop: 1.5500
Risk Ratio (RR): 1 : 3.2 (approx.)
Estimated duration: 7 days
17/05/15 UPDATE: In light of EURNZD recent gains we have decided to opt only for EURNZD as we do not wish to have a large exposure to NZD.
Current EURNZD Daily Chart
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EURNZD Current Daily Chart, 17/05/15
Based on the technical strategy, EURNZD short at market price (1.5358), protective stop layered at 1.5500, targeting 1.4815.
18/05/15 UPDATE: EURNZD is trading at 1. 5304 at the time of this writing.
EURNZD Daily Chart
Please click on the chart to enlarge:
EURNZD Daily Chart, 18/05/15
As the inflation expectations are due from New Zealand we are closing 10% of the short trade at market price with a fair profit.
19/05/15 UPDATE: EURNZD is trading at 1.5307 at the time of this writing following the inflation expectations that strengthened NZD as we have anticipated.
EURNZD Daily Chart
Please click on the chart to enlarge:
EURNZD Daily Chart, 19/05/15
We are closing 40% of the short trade at market price and shift the protective top to the entry.
24/05/15 UPDATE: EURNZD is trading at 1.5044 at the time of this writing. We are closing 20% of the short trade at market price and shift the protective stop to 1.5263.
26/05/15 UPDATE: EURNZD is trading at 1.4966 at the time of this writing as heavy selling was noted in EURUSD.
EURNZD Daily Chart 26 May 2015
Please click on the chart to enlarge:
EURNZD Daily Chart, 26/05/15
We have ended the trade with almost +400 pips excluding the positive interest that was received at the rollovers.
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