A few respectful words to assist exchange rate understanding and especially to my FXstreet friends. Many and I mean many actually wrote the RBNZ could cut OCR by 50 yesterday. I cannot stress how wrong, ignorant and most dangerous these people are to the trading public.To allow these types to place pen to paper is irresponsible. Any idea how huge is a 50 cut. Any idea how a 50 cut would damage the NZ markets. A 50 cut is a sledge hammer in a low interest rate world.and employed only under extraordinary circumstances. But a 50 cut could never occur in a low interest rate world. Not in one fell swoop. And we don’t live under extraordinary circimstances. Consider New Zealand policy and OCR moves up or down takes 6 – 9 months to even feel the effect, more time for larger economies. A 50 cut looks like this 0.0050. A 25 looks like this 0.0025. The distance from 3.25 to 3.00 is extremely wide by itself. A 25 cut saw NZD/USD move 1%. That’s a huge move in today’s FX markets. Imagine a 50 cut and a 2% move in NZD and in one shot. We could only wish to see those days again. A bank analyst wrote NZD moved higher because RBNZ failed to deliver the 50 cut. The famously dumb ones like KL would write something like that but not the true analysts.
Our problem today is we live in a world where public relations is more important than being right or write correct actionable intelligence. Competiton from tons of people forces many to put something out, ignorant or not. All that counts is they put something out. Nobody is ever called on what they write. They never face their accusers. The vast majority of stuff put out these days is garbage, wrong and non tradeable information. So, many resorted to became reporters rather than employ their analytics, if any exists. How about KL’s kick about 5 reasons, 2 reasons, 8 reasons. Its not that no light shines inside the mind but what about decency, intelligence, self respect, honor, principles to those loyal followers who may trade on their information. Back in the day, to read a bank rsearch report was a treasure trove of accurate, smart, tradeable information. Today they are a dime a dozen and many are just as wrong as the famous analysts. Go back like 6 or 7 years to FXstreet.com and see the huge difference in intelligence from today.
How long I will be out here is very questionable because I can’t and don’t want to compete. Honestly, its not worth my trouble. I put every ounce of skill, effort and knowledge into being right and accurate. And for the most part, I’m always dead perfect. I’m scheduled with Brother Dale but honestly, I’m reluctant to do this. Forget about Fxstreet Facebook. I wouldn’t know a facebook if it hit me in the face and I don’t want to know. Okay prices.
What was the range bottoms yesterday. 0.6549 and 0.6517. What happened. NZD/USD shot higher to next reported range top at 0.6646, dead stopped then reversed. Why did price dead stop at 0.6646. Because it was not only overbought at that stage, at that stage but it wasn’t priced to go higher. Plus it was the first point in the daily range top. So it dropped to hey guess what 0.6597. Remember that number from yesterday. Yesterday’s price was 0.6596. At 5:00 when RBNZ reported the OCR drop, we were still working on American market pricing. NZD couldn’t move higher until NZ markets priced NZD. That took 3 hours then NZD/USD rose higher. NZD prices work from NZ open to next NZD open. Its the same for all currency pairs. The point at 0.6597 rose to 0.6599. Point 0.6549 rose to 0.6567 and 0.6517 rose to 0.6519. No further details but the RBNZ gave NZD a screaming buy signal so NZD flew higher. Remember this point if nothing else. A price must, must follow its Statistical price path. It doesn’t matter what happened in life and markets, price must follow its Statistical price path. These analyst types, Bloomberg, I don’t care who they are and what they blame on a price move but its always wrong. Its the Statistical price path that matters. Can’t go against it. Its impossible. The laws of math and the Earth won’t allow it.
So today. We know from yesterday’s statement CPI, Import and Export prices are still problems as I mentioned long ago. CPI is the Tradeables V Non. Only way RBNZ fixes this dual dilemma is to lower the exchange rate. If the exchange doesn’t lower further to the RBNZ satisfaction then they lower OCR again. In the statement, RBNZ speaks about net migration. That means tourists, visitors to New Zealand.
Okay so shorts below 0.6675, 0.6674, 0.6689, 0.6697. I’m late to this game today. Need a break today at 0.6625, 0.6608, to target 0.6577. Watch 0.6625, that;s a range break then .6608 is a big break.
Brian Twomey, Inside the Currency Market, btwomey.com