Forex Analysis – Trade of the Day: NZD/USD 26th August 2014

US New Home Sales

Yesterday, at 2:00 p.m., the US Census Bureau released the national New Home Sales figure, which is an annualized number of monthly new home sales for single-family occupants. A new home would require new furniture and home appliance, etc. The occupants are also going to buy grocery in the local markets and eat out in local restaurants. Hence, analysts consider this data to be a leading indicator of the overall economic health because a new home sale usually creates a wide ranging ripple effect.

Last month, the US New Home Sales figure came out at 422,000, and this month the forecast was set at 426,000. However, the actual figure came out way below the expectation, at 412.000. While the nominal figure indicates this to be negative news for the US economy, it was actually received by the investors to be US Dollar positive news. This is because if the economy is not doing well, the Federal Reserve will continue to support the economy by means of their Quantitative Easing (QE) measures.

New Zealand Trade Balance

During the last hours of the day, at 10:45 p.m., the Statistics New Zealand circulated the Trade Balance figure for the month. The Trade Balance measures the difference in value between New Zealand’s net imported and net exported products during the previous month.

The import and export of a country are directly correlated with its currency valuations because more exports compared to imports would mean additional demand for its currency.

Last month, New Zealand exported $242 million worth of more goods compared to its net imports and this month the forecast was set at -$475 million. The actual figure, however, came way below the forecast, at -$692 million, making the New Zealand Dollar weak against other major currencies.

Trade Recommendation for the NZD/USD

Chart NZDUSD, D1, 2014.08.25 23:56 UTC

The NZD/USD has been in a down trend since July 10, 2014. On August 20, it finally managed to close below the strong support around the 0.8420 level. On August 22, the NZD/USD tested the 0.8420 level, which has already turned into a resistance and produced a bearish pin bar. Technically, the price action created additional bearish momentum in the market that pushed the NZD/USD price towards the 161.8% Fibonacci extension levels, at 0.8342.

Since the NZD/USD has already closed below the 161.8% extension level, and worse than expected New Zealand Trade Balance has set a bearish tone in the market, it is likely that the pair will continue to fall towards the next extension level, towards 0.8237. It suggests a PUT in the NZD/USD.

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About our Forex Analyst: Asif Imtiaz

Asif Imtiaz

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