ATTENTION TO THE NEW ZEALAND DOLLAR ON THE HOURLY!

The New Zealand dollar has made a significant move in the last hour (17:00 Spanish time) from a high of 0.7497 to 0.7464. It looks like a possible head and shoulder formation is coming into play. The NZD is building on downward pressure catapulted by last night’s central bank intervention. We see the bearish spike go from 0.7623 to 0.7530 approx.

-http://www.rbnz.govt.nz/news/2007/3036605.html

The currency may be finding some support on the 200 hour moving average. A very similar technical outlook on the NZD/JPY is also taking place in respect to both the head and shoulders formation and SMA(200).

Traders must also take into account that the New Zealand Federal Reserve surprisingly hiked interest rates to 8% last week putting the carry trade strategy back on the forefront.

Remember that carry trade liquidation was a central issue a few months back since Japan started raising interest rates upon reappearing inflation signals. However, if New Zealand does not let up on their hikes, the interest spread will remain wide enough to incite carry traders (8% for NZD vs. 0.50% for JPY).

No rebound has been seen since the NZ bank’s intervention yet, however, it is important to remember that the currency market is very difficult to manipulate, even for central banks. Thus, this will unlikely have a lasting effect. The currency market is an immensely liquid market with over 2 trillion dollars traded on a daily basis.