Risk-on Currencies Retreat

From the Desk of Ian Culley @IanCulley

Market participants are searching for a new narrative. 

Their uncertainty-fueled meandering is breeding US dollar strength. 

Will the Fed cut, or will they simply do nothing at the March meeting?

No one knows. 

But risk-on currencies have halted their recent advance. And luckily, we have price to light our way…

Check out the New Zealand dollar-US dollar pair (NZD/USD):

The New Zealand dollar is considered a “risk-on” currency as it tends to follow risk assets (global equities and commodities). Notice the NZD/USD rallied into the holidays off its October lows, much like US stocks. That’s not a coincidence.

But last month’s strength has quickly turned into this month’s weakness.

No wonder NZD/USD is sliding below a critical resistance zone at approximately .6400, continuing to carve out a multi-month reversal pattern.

It’s the same story for the Australian dollar…

The .6875 level marks a similar area of supply for the Australian dollar-US dollar pair (AUD/USD).

I like trading both from the long side on a daily close above their respective resistance zones. But more importantly, an upside resolution for these risk-on pairs will accompany broader risk-seeking behavior.

What does that look like?

Global equities are catching a bid. Participation is expanding among US stocks… Hell, Gold might even break out!

For now, it’s noisy as investors plod along a directionless path. It’s to be expected as they wait for the next piece of economic data or headline.

But that path isn’t for us. Instead, we walk a well-lit road marked by price.

Stay tuned.

Let me know what you think. I love hearing from you!