A month after the Swiss National Bank (SNB) revealed a possible reversal of its long-standing policy of maintaining the peg between the Swiss franc and the euro, the NZD/USD pair showed a downward trend. This was largely driven by major central banks’ willingness to prop up their currencies. Moreover, there is still some uncertainty that the SNB’s plans may not come to fruition.
The SNB’s action has triggered talk of changes in exchange rates to curb the volatile swings in exchange rates. Some economists believe that the SNB’s sudden action can have far-reaching consequences, especially in times of uncertainty, thus hurting both the currency in question and global economy.
A group of foreign governments have recently made public statements urging their central banks to maintain the pegged exchange rates. In other words, these states are concerned about the exchange rate movements.
The motives behind the efforts are unclear. However, it should be noted that the exchange rates are still trending lower, and this sentiment is encouraging the SNB to take further action.
The economic recovery from the global recession has been a major boost to the US economy, but it’s also received a significant increase in demand for goods and services. This may mean an increase in inflation and a potential depreciation of the USD, given the fact that the US dollar is the world’s second-largest reserve currency.
US exports have picked up significantly since the latest round of business negotiations, and the long-awaited Trans-Pacific Partnership will likely be completed in the near future. It remains to be seen if this will have any effect on the dollar, as recent data have shown a strong US economic growth.
Experts are expressing concern that the lifting of sanctions will ultimately erode the dollar’s strength. Meanwhile, the Chinese Yuan has surged in value, and it is now widely assumed that this trend will continue.
As per my calculations, the NZD/USD pairs has touched a bottom. The pair is now showing a clear downtrend that has not been seen for several months.
A strong bullish divergence is evident in the pairs. Since the decision to keep the peg, the AUD/NZD pair has gone through a huge swing, indicating the formation of a reversal pattern that may indicate the end of the popular trend.
It would be surprising if the US Federal Reserve would extend its stimulus program to the extent suggested by Wall Street, as the developments that are seen by many in China are hardly positive. Indeed, if the central bank decides to postpone the first rate hike since 2020, then the markets will be in a bearish trend.
Let me emphasize that with a little luck, I don’t see double-digit decline. However, as stated in my previous articles, I am very much bearish on the exchange rates at the moment.
Potential support levels include the 80.00 low and the 88.00 high. If you don’t mind technical analysis, I would advise you to sign up for a free trial of Forex MegaDroid (no strings attached).