Why the Dow Jones and the NZDUSD appear vulnerable
Tony Sycamore September 9, 2021 12:07 PM
The month of September is statistically the weakest month of the year for U.S equities. The average decline in September over the past ten years has been -0.60%. Negative prints can be observed in five of the ten years, including a -7% fall in 2011, a -2.5% fall in 2015, and a -4% fall in 2020.
Last night the S&P500 and the Dow Jones closed lower for a third straight session, providing an initial indication that the negative seasonal tendencies of September may again be set to play out.
The Dow Jones appears to be the most willing participant of the three key U.S. equity indices in exploring the downside after closing for a second day below the uptrend support from the March 2020 low.
In the F.X. space, the U.S dollar index has benefited from risk aversion buying the past three sessions. Should the U.S. dollar continue to rally on the back of further equity weakness, the NZDUSD appears vulnerable.
While New Zealand’s covid outbreak now appears under control enabling the government to lift restrictions across most of the country, possibly as early as this afternoon, Auckland is expected to remain in lockdown until late September.
Based on this, Goldman Sachs forecast the current lockdown to shave 3.5-4ppt off Q3 GDP. While this is unlikely to stop the RBNZ from raising rates in October and November of this year, it increases the risks that the NZDUSD may be susceptible to a pullback.
In recent weeks, the NZDUSD rallied over 5% to a high of .7170, above the 200 day moving average at .7118, and trend channel resistance at .7150 from the February .7465 high.
The move to the .7170 high appears to have been a false break higher out of a well-established trend channel. If U.S. stock markets continue to wobble, it would not be difficult to imagine some mean reversion in the NZDUSD back below .7000c.
As such, consider opening short NZDUSD positions near .7100c, with a stop loss placed above .7175 and looking to take partial profit near .7000c and again near .6950.
Source Tradingview. The figures stated areas of September 9, 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.