Trade of the Day: NZD/USD 6th August 2014

US ISM Non-Manufacturing PMI

Yesterday, at GMT 2:00 p.m., the US based Institute for Supply Management (ISM) released its monthly Non-Manufacturing PMI figure, which measures the level of a diffusion index created by surveying purchasing managers. However, the ISM’s PMI figure excludes the non-manufacturing sector.

Analysts consider the ISM Non-Manufacturing PMI figure to be a leading economic indicator because purchasing managers have the most updated view of the economy.

Based on last month’s survey, the ISM’s PMI figure came out at 58.7 against the forecast of 56.6. Any figure above 50 is considered an industry expansion. The better than expected figure about an expanding US non-manufacturing sector was certainly a Dollar positive news.

NZ Unemployment Rate

Later in the day, at GMT 10:45 p.m., the Statistics New Zealand released the national unemployment rate of New Zealand. The national unemployment rate measures the percentage of the total work force who were actively seeking employment opportunity during the previous quarter. The unemployment rate is usually considered a lagging economic indicator. However, it indicates the future consumer spending in the economy as people with jobs and steady paychecks tend to spend more.

During the last quarter, New Zealand’s unemployment rate declined from 5.9% to 5.6%. Moreover, the forecast was set at 5.8% and when the actual figure came way below it, market participants interpreted this as a potential clue to further interest rate increase from the Reserve Bank of New Zealand.

Currently, New Zealand’s base rate is at 3.5%, one of the highest in the developed economies. Further rate hike will increase the cost of capital and it may adversely affect the economy.

Trade Recommendation for the NZD/USD

Chart NZDUSD, H1, 2014.08.05 23:41 UTC, Triple A Investment Services S.A., MetaTrader 4, Demo

The NZD/USD has been trading between the narrow range of 0.8530 – 0.8470 for the last few days. Yesterday, better than expected US Non-Manufacturing PMI figure pushed the pair to break the support around the 0.8470 level.

During the New York session, the support turned into resistance and the NZD/USD continued its fall during the last few hours of the day. After the sharp decline of the NZD/USD, it appears that it has ample bearish momentum left to continue declining for the remaining few days of the week. In that case, the NZD/USD may find support around the 423.6% Fibonacci extension level, at 0.8382.

Since the overall market sentiment and fundamental outlook for the NZD/USD is indicating a further decline, it indicates a potential PUT in the NZD/USD.

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About Analyst:  Asif Imtiaz

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