Forex |Friday, May 30, 2008 5:47PM EST Your Next Trade The Coming Commodity Retracement by Abe Cofnas
It's always a good thing to prepare for your next trade. This kind of philosophy helps the trader escape the dangers of chasing the market. One of the best “ next trades” is to focus on the Kiwi or New Zealand dollar pair. Let’s take a look at the Day Chart. We can see
the formation of a downward channel. It's down for a reason. First, there is growing anticipation that the Federal Reserve will not decrease rates. Speculation is even increasing that they might increase rates, if inflationary expectations are strong. This first factor of interest rate expectations leads a lot of money to leave the Kiwi because the interest rate differential between the Kiwi and the dollar will decline. When you have hundreds of millions of dollars placed in a currency, even a small change in expectations of interest rates will have an impact. The market forces a search for better yield.
Secondly, there is the expectation of a slower New Zealand economy. Reports of slowdowns in the New Zealand economy are increasing. Here is what was reported by Bloomberg:
May 28 (Bloomberg) -- New Zealand's economy is in recession and heading for three years of poor growth because of record- high interest rates and a global credit crisis, according to ANZ National Bank Ltd., the nation's biggest lender.
The economy probably contracted 0.3 percent in the first quarter and will shrink the same amount percent in the three months ending June 30, ANZ National said in its quarterly forecasts released today in Wellington. Growth this year will be 0.9 percent, the weakest since 1998, it said.
Economic growth, which averaged 3 percent between 2003 and 2007, will be 1.3 percent in 2009 and 2.1 percent the following year as household spending slows and productivity growth remains poor, ANZ National said. A recession increases the prospect Reserve Bank Governor Alan Bollard will cut the benchmark interest rate from 8.25 percent this year.
``The case for rate cuts is building,' said Chief Economist Cameron Bagrie. ``We expect a very weak domestic economy to suppress prices.'
This is enough material to get into a sniper position and look to sell the NZDUSD pair.
Where do you enter such a position? I will leave that up to the reader. Anyone putting on a winning selling position based on this article- write me and I will send you a free book.