Back In the Saddle

  • Non-Brexit fundamentals work back into picture
  • Bad news and Aussie still holds up well
  • GBPNZD has been hit super hard of late

FULL SWING - The market will look to get back into the swing of fuller trade following the long holiday weekend in the US. Brexit risk and potential fallout is still front and center in my view, though the process is clearly going to drag out longer than many had thought and this leaves room for other fundamentals to come back into the picture. Up until a couple of weeks ago, it was all about the Fed outlook and risk for another rate hike from the Fed this summer. And while we probably won't get a hike this summer, this week's US employment report will still play an important role. 

BAD DOESN'T HURT - As far as the trading goes, I continue to sit on my AUDNZD long from the mid-1.0500s, and I am once again playing this SPX500 rally to the short side, looking for yet another topside failure above 2100. With AUDNZD, I am actually quite encouraged with the prospect for some good upside ahead. Already into the new week we have a potential hung parliament in Australia's federal election and a softer run of Aussie data. And yet, the Australian Dollar has held up quite well in the face of all of this. So if AUDNZD can hold up after all of the Aussie negatives since the weekly open, surely it would stand to reason there could be some real value down at current levels. 

A LITTLE MORE EXOTIC - The other trade out there right now is actually on my radar but not one in which I have any exposure to just yet. In today's technical update I featured the GBPNZD cross rate. If you take a look at the daily or weekly chart for this market, you get a good look at some seriously oversold technicals. The daily RSI is tracking well below 20, while the weekly is sitting down at 25. Of course, we need to be very careful with a trade like this, especially if the Pound is still at risk for fresh lows on the Brexit fallout.

Encouraging to see Aussie hold up despite election and soft data. Via @joelkruger

STRATEGY - And yet, if the Pound is exposed, with the market already taking a good amount of time to price this event in, it would seem other currencies exposed to risk liquidation could come under more intense pressure. So a currency like the New Zealand Dollar could start to come off much harder than the Pound which has already been pricing in the Brexit risk. As such, I like looking to buy GBPNZD and will be waiting to see if anything sets up over the coming sessions. 

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