NZD/USD hits a high of 0.6855 after having traded at a low of 0.6810 earlier

NZD/USD H1 15-02

Optimism surrounding trade talks in Beijing was fading to start the day as US and China were reported to have structural issues that are difficult to work out and that tempered with the risk mood in Asian and early European trading. NZD/USD hit a low of 0.6810 before trading sluggishly around 0.6820-30 earlier on.

But as trade talks conclude and both parties are moving closer to a memorandum of understanding (with more talks planned for next week), risk is rebounding and that is helping to fuel gains in the kiwi and slight weakness in the dollar as well.

As a result, NZD/USD has climbed to a high of 0.6855 currently and is challenging yesterday's high as well as resistance from the 61.8 retracement level @ 0.6857. There's also daily resistance around 0.6850-70.

Despite hope for a breakthrough on a trade deal some time next month, I still believe that there is plenty of critical issues that are still tough for both parties to resolve and that will eventually temper with any optimism we're seeing so far over the past few hours.

For the time being, risk assets may still ride the euphoria and NZD/USD could potentially make a move towards 0.6900 should the 61.8 retracement level give way in trading later. But if we do get there, I'd be inclined to short the pair as I reckon the optimism here is a little ill-judged.

There's good reason to believe that US and China are heading towards something more productive in the coming months. However, it's still tough to believe that a sudden pact here will do much to change much of the issues and worries surrounding the global economy.

I may be wrong and China's economy could see a major rebound later in the year to drive global sentiment to be more upbeat, but for now I'm just not buying into that story until further economic data convinces me of otherwise.