Gaps not common in forex trading; NZDUSD high impact news over weekend
So we have a high impact news happen over the weekend that has huge bearing on a currency: the New Zealand Dollar or Kiwi. Dairy Giant Fonterra announced that tests turned up bacteria that could cause botulism. What is botulism? From Wikipedia:
Botulism is, in humans, a rare but sometimes fatal paralytic illness. Foodborne botulism is an intoxication caused by consuming food contaminated with the botulinum toxin.
The toxin is a protein produced under anaerobic conditions (where there is no oxygen) by the bacterium Clostridium botulinum, and affects a wide range of animals, including mammals, birds and fish. In domestic fowl, such as ducks, chickens, etc. as well as in birds in the wild, the disease is known as Limberneck.
As a result, there is a global recall.
New Zealand’s Ministry of Primary Industries said on Saturday that the tainted products include infant formula, sports drinks, protein drinks and other beverages. It said countries affected beside New Zealand include China, Australia, Thailand, Malaysia, Vietnam and Saudi Arabia.
Kiwi weakens dramatically because milk powder account up to 15% of New Zealand exports
This article on Zero Hedge succinctly explains what milk powder has to do with the Kiwi.
Since milk powders accounted for a whopping 15% of total New Zealand exports in 2012, it becomes obvious that unless Fonterra, and the NZ government, engage in some prompt damage control, the Kiwi may have much more room to drop as the country’s 2013 GDP forecast may be the next thing to go toxic.
Conditions that create a forex gap
Bearing in mind that the forex market is very fluid, it is unlikely for such a gap to form during on market trading days. A major contributing factor is therefore the news breaking on the weekend. And as a summary, the gap is caused by:
- High impact news that affects currency through economic indicators like GDP
- News break over weekend so that market will price in the information at open
Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.
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