“The U.S. dollar stabilized as optimism about a potential coronavirus vaccine was offset by worries about how the drug will be delivered and by a surge of new infections in the United States.” (Reuters)
It’s not just a surge in cases in the USA which is stabilizing the USD – it’s the rise in cases across the world which is helping it: “With the global daily infections from the coronavirus accelerating yesterday, it seems that concerns over the pandemic’s economic impact may have limited further gains in equities and other risk-linked assets.” (Charalambos Pissouros JFD Group.) The USD is oversold with speculators heavily short we expect a rally to correct its oversold condition but a currency that has pushed higher today is the NZD which has gained strength from the RBNZ meeting yesterday.
NZD Rallies on RBNZ – Swing Trading Opportunity
The Central bank kept interest rates on hold at 0.25%, which was expected by the market but RBNZ Governor Adrian Orr also said domestic economic activity since August has been better than expected and the NZD rallied as traders took the view that the Bank of New Zealand is not likely to move to negative interest rates and this view is now discounted in the bond market.
At a news conference, RBNZ Governor Adrian Orr said that it was “too early to tell” if the possibility of negative rates had now decreased but for now the NZD is firm. With the bond market reflecting no negative rates and risk assets vulnerable to a correction, we think the NZD swing traders can consider short positions as per the chart below.
USD TRY A Buying Opportunity?
In terms of the USD/TRY it’s a big bull trend and we have followed the move up since August, but we have now seen a correction that we envision as a buying opportunity.
Turkey has inflation running above interest rates, a Central bank reluctant to raise rates which has also run out of currency reserves to defend the currency. Turkish USD debt is high Lira weakness is increasing the chances of defaults. Capital inflows have slowed, and outflows increased as traders are wary of the outlook for the domestic economy and concerned about Turkey’s expensive and dangerous foreign policy. We think the pullback is a buying opportunity.
NZD/USD DAY: The NZD Has rallied on the RBNZ but we are stalling below a round number 0.6900. We have broken to new daily highs and will sell a breakback into the channel below 0.6800 at 0.6780, stop behind the 50 pips behind today’s high. If we break support, we expect a move down towards the bottom of the channel. NOTE: If we breakout above 0.6900 the trade set up is negated.
USD/TRY DAY: The USD Has moved sharply higher on the TRY since August but we did see the biggest move in two years on Monday as the USD fell hard. In terms of the correction we view it as a buy and have been buying corrections to the 20 Day Moving Average (The Green Line) since September. We have now broken below the 20 Day MA and will go long back above it and today’s with a stop behind the 8.00 level – We expect a move to new multi-year highs and a move up to the 10.00 level.
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