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The Kiwi is Running on Reserve – June 30, 2010


Hello once again forex fans! Earlier today, I presented the recent price action of the Aussie-USD pair. Now, it’s the Kiwi’s turn to be on the spotlight. On this canvas is an update of the NZDUSD pair which I posted yesterday (kindly click here to see my blog yesterday). It turned out that the Kiwi lost sight of the “KitKat” that I was talking about yesterday when it broke down from a rectangle pattern. As I had mentioned, a break of the range;s support would likely send it back down towards the double bottom’s neckline – and that is exactly what transpired. Yesterday’s fire sale caused the Kiwi to be dropped like it’s hot with the NZDUSD sliding from 0.7065 to close at 0.6923. But unlike the AUDUSD in my other post today, the NZD’s double bottom lifeline has not yen been breached, giving it a higher chance of surviving the next couple days. With the stochastics in the oversold area, the pair could bounce back until it meets some resistance at the former support of the rectangle. A break of the 0.6900 psychological barrier, on the other hand, could send it down at the trough of the double bottom which is around 0.6575.

Yesterday’s breakdown was due to the downbeat results from China’s leading economic indicators. China recent leading barometers failed to impress with only a 0.3% gain after printing a surge of 1.7% during the previous month. This result sparked some fears that the present global growth may not be as robust. Remember that China is the number 2 largest economy in the world. With the US already slowing down, a cool down in China’s growth would further cap the world’s economic growth. Remember also that China sources its raw materials like commodities from countries like Australia and New Zealand. A drop, therefore, in China’s production would also limit their need for these input materials.

China’s manufacturing PMI is on deck tomorrow (July 1) at 1 am GMT. China’s manufacturing index is seen to have dipped slightly to 53.2 from 53.9. Such would add some confirmation that China’s economy has indeed cooled down a bit. If the index comes in as expected or worse, the higher yielding currencies like the NZD could suffer again. An upside surprise, on the one hand, could give the Kiwi some support. Let’s all hope for that.

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