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NZD/USD is Falling with Dairy Prices but We Should Remain Bullish

The New Zealand Economy is an export economy, with dairy and dairy products as the major component  Its economy has been supported by strong Asian demand for its dairy. However, dairy prices fell sharply in July, and NZD/USD is also sliding.


(source: GlobalDairyTrade)

The GDT Price index reflects prices of dairy products, and shows that it fell more than 8% in July. This spike can be attributed to July's dip, it did so in April when the price also dipped more than 8%.

NZD/USD Daily Chart 7/17

(click to enlarge)

Despite the previous dip in NZD/USD based on the dip in dairy prices, NZD/USD only consolidated and eventually continued the prevailing bullish trend in 2014. 

In fact, all through 2014, we saw dairy price dropping, and NZD/USD still rallied. The spike did coincide with a consolidation period, but has not proven to be enough to reverse the NZD/USD's uptrend. You might need a stronger reason to short NZD/USD beyond the bearish correction developing now.

There are a couple of spots to look for support. The last line of defense however willl likely be aroudn 0.86, and the rising 2014-trendline. Below the rising trendline, we can start considering a beraish outlook.

The daily RSI has tagged 70, and if the RSI stalls at 40, we should look for a bullish attempt, especially if price is also around 0.86.