From the Desk of Ian Culley @IanCulley
The talking heads are forecasting choppy market conditions and a significant correction for Q3.
News flash: The market has been messy for months. And we already experienced a stealth correction beneath the surface.
I’ll keep an open mind, but if commodity currencies start breaking out…
Forget about it!
Stocks have weathered the US dollar’s recent rally.
Imagine how they’ll perform once the dollar rolls over, especially against risk-on currencies like the New Zealand dollar.
Check out the NSD/USD pair coiling within a symmetrical triangle after retesting its 2020 low:
I’m not a fan of symmetrical triangles, as I’ve found measuring risk with diagonal boundaries far less reliable than horizontal support/resistance levels.
Plus, they don’t carry a directional bias.
But when we zoom in…
The kiwi is carving out a five-month inverted head-and-shoulders pattern:
We now have a horizontal boundary to define risk and a reversal pattern with a bullish outlook.
Of course, this reversal pattern could take a different shape as price continues to chop sideways.
Remember, we base our entries on decisive breakouts. The kiwi’s potential bullish reversal doesn’t become an inverted head-and-shoulders until an upside resolution completes the pattern. And even then, it could fail.
Regardless, I’ll buy the NZD/USD on strength above 0.6200 with an initial target of 0.6375.
But given the RBNZ interest rate decision tonight, I’ll avoid increased volatility by placing orders tomorrow morning.
The back half of the week should also throw a curve ball or two, with US CPI and PPI data releases scheduled for Thursday and Friday. Stay nimble!
Bigger picture: An upside resolution for the New Zealand dollar and other commodity currencies blares risk on for stocks and commodities.
So whether you trade forex or not, keep your eyes peeled and your bull market party shirts pressed.
–Ian
Thanks for reading.
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