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The Kiwi becomes Wednesday’s star

The New Zealand Dollar was hands down the best performer on Wednesday. The currency took center stage on the back of the New Zealand's Central Bank (RBNZ) decision. The institution clearly hinted no negative rates are coming, which led to a major re-assessment of the currency's valuation by the big players in the Forex market. 

Let’s get started…

Scan of the markets

To see an expanded version, right-click and select ‘open link in new tab‘. The indices show the performance of a currency vs a G8 FX basket. 

The New Zealand Dollar was hands down the best performer on Wednesday. The currency took center stage on the back of the New Zealand’s Central Bank (RBNZ) decision. The institution clearly hinted no negative rates are coming, which led to a major re-assessment of the currency’s valuation by the big players in the Forex market

Why the NZD rallied?

Today I’d like to single out the New Zealand Dollar and provide a detailed explanation as to why the market in such a bullish manner after the RBNZ. The first thing to understand is that the Forex market has overtime evolved into a well-oiled and extremely efficient mechanism to discount future expectations today.

Overtime Forex market has evolved into an extremely efficient mechanism. Mismatch of expectations is the only logical reason for the Kiwi’s strong rise. The moment the RBNZ published its monetary policy statement, the market realized that the announcement of a new lending program by the Central Bank meant a reluctance to go down the path of negative interest rates.

The news caused an immediate reaction among participants. Their behaviour was well portrayed in the rates market (OIS) where the odds for negative rates have plummeted. RBNZs unusual strategy made the NZD reflects it. The overall ‘risk on’ dynamics has been another positive input to account for.

View by commercial banks

In fact, right after the release, ANZ Bank sent a note to clients stating: “Despite the RBNZ’s ongoing dovish rhetoric, the evolving balance of risks suggests less justification for rushing into a negative OCR.”

BNZ mentioned the following: “If the positive vaccine progress becomes even more positive then the RBNZ will be even less inclined to ease monetary policy So it’s now back to data watching. The balance of risks remains on the negative side but the risk profile is, at least for now, far more evenly balanced than it previously was.”

NZD/USD technicals on fire 

Coincidence or not, this week I published a video about the reliability of the 13-weighted moving average in the NZD/USD as my Go-To indicator to jump on discount areas within trends. To me, this is the best location to optimize entry exposures in trending markets.

Looking at the vicinity in the chart of the NZD/USD, that’s where the market paused to assess the RBNZ outcome before the mark up in prices. Since the US presidential election – led rise in the pair. And with the recent Pfizer vaccine news, the NZD/USD has been respecting this discount line gauge.

Hot trade of the day

To see an expanded version, right-click and select ‘open link in new tab‘. In this section, I pick a market or several ones that presented an opportunity to buy on weakness or sell on strength, based on the higher timeframes outlook. My video analysis below, elaborates further on the logic behind the trade.   

In this video analysis I dissect the hot trade of the day. A fully-fledged trading course, including lessons on how to trade this pattern, will soon be available via Global Prime Trading Academy website. While the video is intended as educational and not financial advice, it portrays the power of trading the pattern the right way.

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Recent economic indicators & events ahead

 

Source: Forexfactory

If interested in the best ‘free of charge’ News Indicator that displays data on past and future news in the Forex market via MT4, check this YouTube video. The indicator allows you to save time and avoid mistakes.

Important footnotes

Market structure 

Markets evolve in cycles followed by a period of distribution and/or accumulation. To understand the principles applied in the assessment of market structures, refer to this video. Fractal breakouts is at the epicenter to assist us in the analysis of chart structures.

Market momentum

In order to assess the market momentum of a particular asset, I’ve promoted for years the idea of using what I call the smart money tracker. The settings and the indicator can be obtained via our Discord room, where traders from all walks of life interact frequently. Watch this video where I go through the layout and all elements of the Discord room in great detail.

Projection targets 

The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

About the author

Ivan Delgado

Ivan Delgado is a decade-long Forex Trader. Feel free to follow Ivan on Youtube. Join thousands of traders who follow Ivan's insights to increase their profitability rate by learning the ins and outs of how to read and trade financial markets. Ivan has you covered with in-depth technical market analysis to help you turn the corner.