Sterling Sellers Strike Back! (Forex Trade Analysis, Feb 2021) GBPNZD SHORT
The United Kingdom (UK) and the Great British Pound (GBP) were heavily affected over the past year. The ups and downs due to the virus has sparked market volatility. Overall the economy took a huge hit and is still yet to recover.
Almost two million people have not worked for at least six months due to the economic impact of the pandemic - BBC
On top of this the overall furlough scheme has stimulated this to help soften the economic impact. There will always be pros and cons to every fiscal policy... and thus there will always be an impact on exchange rate and asset prices.
Overall, I was particularly interested in GBPNZD due to the following fundamental and technical analysis.
Fundamental Analysis Summary - Logikfx Technology
Overall the fundamental analysis for the forex currency pair GBPNZD is looking BEARISH.
We can instantly see a diversion of GBP heading down and NZD heading up on the Macro Currency Strength Meter. This filters out market noise by analysing the economic indicators domestically. Overall, telling us that GBPNZD is potentially overvalued and might be looking to dip!
This is a highly interest pair to really keep an eye on for one reason... ALL the economic indicators are suggesting a downwards move is coming.
However, that doesn't necessarily mean it's going to be 100% a drop... you've got to remember markets are uncertain and you need to embrace uncertainty.
Gross Domestic Product - Forex Fundamental Indicator
One of our key pieces of technology here at logikfx is the GDP differential indicator. This tracks and puts the data of the latest IMF forecasts on GDP. Basically telling us how much a country is expected to grow.
What we can see from the graph and the change in GDP % growth is that UK is going to take a hit. We're dipping in 2022 in comparison to the expected rise this year. This is highly likely as UK vs New Zealand GDP differentials never recovered since 2008.
Majority of the time it was negative with the exchange rate following suit and down trending since 2008.
GDP Differentials agree with the bearish outlook!
Imports/ Exports Analysis
A2 Milk or ATM are one of the major producers of dairy that we've chosen to analyse vs GBPNZD. The main reason being Dairy products are a huge export for New Zealand across the globe.
What we've found across the two is that there's a negative correlation. When the price of A2 milk goes up, generally the price of GBPNZD goes down and vice versa.
This relationship in combination with negative growth on A2 milk shows that currently this company analysis is not agreeing and is actually saying we're bullish. This is the opposite of what we were expecting but we can't be biased when looking at data.
The next company I took to analyse was New Zealand Air. Most the world has cut travel, airlines directly took a hit from this having to basically freeze all business. This was the worst outcome for all airline companies in the world and many went bankrupt.
What we saw was AIR dip over 50% during March and has since yet to recover.
Why? New Zealand have very strict rules on who can come in and out.
Domestically, they're doing pretty good though with most businesses running as normal.
However, just like the A2 Milk correlation analysis we've found that New Zealand Airlines also has a negative correlation. There's also been negative growth which again creates a bullish outlook using imports/ exports alone.
Overall, imports/exports are not agreeing with the bearish outlook.
Interest Rate Differentials - Hot Money Flow Analysis
Interest rates are a great gauge on the hot money flows. Put it simply, investors move their money around the world to seek the best returns against risks, right?
When a country has higher interest rates there's an interest to hold one currency over the other as one will yield more in return.
The Interest Rate Differentials capture that money flow and create a bullish or bearish indicator.
Regarding GBPNZD, it's looking bearish, negative interest rates in the UK have been spoke about and New Zealand interest rates are looking a tiny bit stronger right now so therefore more attractive for investors.
Overall, Interest Rate Differentials agree with the bearish idea.
Domestic Stock Market Performance
The FTSE100 is a great barometer on the wealth of the United Kingdom. It basically tells us how well companies are doing which trickle down into how many people they're employing, which trickles down into increased spending and so on.
What we've done is priced the FTSE100 in NZD to analyse whether the UK is becoming poorer or wealthier in comparison to New Zealand.
The conclusion we found?
The UK is looking poorer...RIP.
The FTSE(NZD) dipped really hard early 2020 making a rise early 2021.. However, it's yet to recover meaning we should be bearish on GBPNZD.
Overall, stock market performance agrees with the bearish idea.
Hedge Fund Tracking - Open Interest COT Report Analysis
This week the Commitment of Traders Report or also known as the COT Report had interesting bearish signs for GBPNZD. Overall, we decided the track the net hedge fund sentiment and found that the differential between the 2 was negative.
This mean that the Hedge funds have started to increase positions in selling GBP in comparison to NZD. This is generally a bearish sign however both currencies are being longed overall so we're kind of sitting in the middle.
Overall, hedge fund COT positions are neutral on the bearish idea.
Technical Analysis - Price Trends
What do I think of GBPNZD?
Overall, throughout 2020 GBPNZD was shorted, we've hit a slight area of support but will it hold through...
My opinion, it doesn't.
To me the trends are looking bearish if we're looking at 2020 to current date there's no signs buyers are in control and with the potential negative interests in discussion there's a big chance we're in for another downward spiral!
Feel free though to comment your technical analysis or post it in the forum!
If you enjoyed the article please leave it a like/ comment below any support! Helps me stay motivated to keep pushing out this free content for you all. Stay safe. - Matty, Logikfx
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