Judging by markets this week, all is rosy. Global share prices are rallying. Oil is again over US$60/barrel. High yielding currencies are appreciating. All of which was dwarfed by Fisher & Paykel up 66% in a week. The problem is, all is not rosy.
This is very likely to be a relief rally – relief that the financial meltdown was avoided earlier this year. It is difficult to perceive that shares, high-yielding currencies and commodities simply trend upward for months to come.
At some stage there will be renewed attention to the problems in different parts of the world and a significant turnaround in prices and exchange rates (e.g. the recession in Europe, the tighter government spending in NZ, the huge debt that FPA has to repay within one year).
A starting point to guessing this turnaround level would be the S&P500 rally reaching 1000 i.e. another 6% higher or a week or two at the pace of recent weekly surges. Such a rally would also put the EUR/USD near $1.5 and the NZD/USD near 70c. All these levels are likely to be very appealing to those waiting to sell. At the very least, there will be sell orders concentrated around such levels.
Will the NZD get that high? That’s unknown. The NZD/AUD above 80c is a warning that the NZD is again too high. The current risk-buying momentum suggests the NZD could go a little higher. In terms of timing, the two sensitive events this week are the ECB policy announcement Thursday night and the US monthly jobs figure Friday.
It is time to start planning a strategy to sell NZDs.