WHAT ARE YOU DOING WHEELER? - When you are short the New Zealand Dollar as I have been over the past several weeks, you get a little frustrated when Mr. Wheeler seemingly invites additional appreciation in the local currency. While I understand efforts to actively or even verbally intervene are futile, given the scope of external speculative flows in the New Zealand Dollar on account of the favorable yield differential, I don't understand taking an approach that invites additional Kiwi demand. Why feed the beast? On Wednesday, Mr. Wheeler warned of additional demand for New Zealand Dollars via the Yen, with the carry trade looking attractive. And although there were other things going in the market (Aussie demand and broad USD Selling helped to bolster Kiwi), these comments only contributed further to the latest gains. The softer than expected NZ retail sales data (even with upward revisions) didn't weigh on the currency for more than minutes, before the market rallied back to session highs.
NOT GETTING HUNG UP - Fortunately, despite all of this, my frustration should not be mistaken for discouragement. I am still deferring to the broader cyclical structure warning of a major top, and I still see evidence of cooling within the local economy, with external factors also weighing on the New Zealand Dollar in the days ahead. Technically, look for gains to be well capped below 0.8700 on a daily close basis, with a break back below 0.8610 to open the door for an assault on a major floor at 0.8515. Although the process has been painstakingly slow, it really only comes down to a day or two of weakness to get this market rolling over. I will be looking to add to my short position today, on a break back below 0.8610. Elsewhere, keep paying attention to USD/JPY and EUR/CHF. I still see room for more weakness in both these markets, and weakness here translates into broad risk of price action (should be good for Kiwi short). It is important that EUR/CHF trades below 1.2200 and USD/JPY establishes back below 102.00.