NZD/USD Eyes October High Following RBNZ Rate Cut

Talking Points:

- NZD/USD Eyes October High Following RBNZ Rate Cut; Retail Crowd Remains Net-Short.

- AUD/USD Climbs Towards Top of Current Range Following Strong Australia Employment Report.

- USDOLLAR to Recoup Losses on Strong Retail Sales, Improving Consumer Confidence.

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NZD/USD

Chart - Created Using FXCM Marketscope 2.0

• Even though the Reserve Bank of New Zealand (RBNZ) reduced the official cash rate to a fresh record-low of 2.50%, NZD/USD appears to be threatening the wedge/triangle formation from back in September as fresh comments from Governor Graeme Wheeler and Co. suggest that the central bank is approaching the end of their easing cycle.
• Long-term outlook for NZD/USD remains tilted to the downside amid the deviating paths for policy while the RBNZ keeps the door open to implement lower borrowing-costs but, the pair stands at risk of making a run at the October high (0.6896) as long as the Relative Strength Index (RSI) retains the bullish formation carried over from the previous month.
• Despite the near-term rebound, the DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-short NZD/USD since November 18, but the ratio has hit near-term extremes as it narrows to -1.74, with 36% of traders now long.

AUD/USD

• The 71.4K expansion in Australia Employment may push AUD/USD back towards the December high (0.7385) as it dampens bets of seeing the Reserve Bank of Australia (RBA) further embark on its easing cycle in 2016; will retain a constructive view as long as the RSI preserves the bullish trend from back in August.
• AUD/USD may make a larger attempt to break out of the wedge/triangle formation should the RBA Minutes highlight a neutral outlook for monetary policy but, the Australian dollar stands at risk of facing headwinds over the near-term as central bank Governor Glenn Stevens retains a cautious outlook for the region.
• As AUD/USD continues to close above 0.7180 (61.8% retracement), we need a break/close above 0.7380 (50% retracement) to 0.7390 (78.6% expansion) to favor a larger recovery.

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USDOLLAR(Ticker: USDollar):

Chart - Created Using FXCM Marketscope 2.0

• The USDOLLAR may continue to come off of the weekly low (12,040) as the U.S. Advance Retail Sales report is expected to show another 0.2% in November, while the U. of Michigan Confidence survey is anticipated to increase to 92.0 in December from 91.3 the month prior.
• Signs of a stronger recovery may prop up the USDOLLAR ahead of the Fed’s December 16 interest rate decision amid expectations for the first rate-hike in nearly a decade but, the forward-guidance for monetary policy may play a larger role in driving dollar volatility in 2016 especially as the central bank is scheduled to release its updated forecasts for growth, inflation and interest rates.
• Former-resistance around 12,049 (78.6% retracement) to 12,082 (61.8% expansion) remains in focus as the USDOLLAR searches for near-term support but, failure to hold the near-term region may open up the next downside targets coming in around 11,951 (38.2% expansion) to 11,965 (23.6% retracement).

*As we approach the holidays and thus illiquid markets, it's worth reviewing principles that help protect your capital. We call these principles the "Traits of Successful Traders."

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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