New Zealand Dollar Well Bid Despite Broader Global Macro Flows

The ongoing Eurozone debt crisis and threat fear of contagion from the peripheral into the core economy continues to dominate trade, with investor risk appetite diminishing quite rapidly. This has weighed tremendously on the Euro and currencies in general, with the US Dollar standing out as the prime beneficiary. Also seen propping the buck have been some hawkish comments from Fed Bullard who says that the Fed may have to considering tightening if growth in the second half of the year is strong. Meanwhile, the latest surge in the Franc against the Euro has Swiss central bankers once again concerned, with SNB Jordan coming out on the wires and saying that he is “very worried” with the strength of the Franc.

One currency which continues to defy gravity however, has been the New Zealand Dollar, which remains very well bid in recent sessions on the back of a well received government budget and most recently, a higher than expected annual inflation forecasts. Elsewhere, chatter that Moody’s could be looking to place UK banks on review for downgrade as soon as today has been weighing on the Pound a bit, especially after an official downgrade on the UK’s local and foreign currency long-term sovereign credit rating came from a Chinese local rating agency on Tuesday.

Looking ahead, German GDP and German IFO will take center stage in European trade, while Uk public finance data will also be watched closely. On the official circuit, Fed Rosengren is also slated to speak in the European session on the topic of financial stability at 6:00GMT. US equity futures and commodities are recovering from the previous daily setbacks and track mildly higher on the day thus far.

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: The market continues to show signs of weakness following the break below 1.4155 support several days back, and the risks from here are for deeper setbacks over the coming days towards next key support in the 1.3800’s. Look for a clear break below 1.4045 to confirm and accelerate, while any rallies should be well capped ahead of 1.4350.

USD/JPY: After undergoing a fairly intense drop off from the 85.50 area several days back, the market looks to have finally found some support by the bottom of the daily Ichimoku cloud and could be in the process of carving out some form of a base. Look for setbacks to continue to be well supported in the 80.00’s with only a close back below 79.50 to give reason for concern. From here we see the risks for a fresh upside extension back towards the recent range highs at 85.50 over the coming days.

GBP/USD: The market is starting to give way, with the price now dropping back below the 50-Day SMA to warn of additional declines over the coming sessions. Look for deeper setbacks below 1.6000, with any rallies now expected to be well capped ahead of 1.6400. Ultimately, only back above 1.6520 gives reason for concern.

USD/CHF: Starting to show signs of basing off of the recently established record lows by 0.8550, with the market putting in a solid bullish close for two consecutive weeks and breaking back above the previous weekly high. Next key resistance comes in by 0.9000 and a break above will further confirm recovery structure and open the door for a move back towards a medium-term lower top at 0.9340. Look for any intraday setbacks to be well supported above 0.8700 on a daily close basis. Ultimately, only a daily close back below 0.8700 delays and gives reason for concern.

Written by Joel Kruger, Technical Currency Strategist

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