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Talking Points:

- The Q1’19 New Zealand Consumer Price Index is due on Tuesday, April 16 at 22:45 GMT.

- The Reserve Bank of New Zealand has taken on a more dovish tone in recent months, with rates markets leaning towards a 25-bps rate cut in June.

- Retail tradersare net-long NZDUSD but recent positioning changes point to more losses.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

04/16 TUESDAY | 22:45 GMT | NZD Consumer Price Index (1Q)

Q1’19 New Zealand inflation data are due to underscore the Reserve Bank of New Zealand’s recent concerns about a sluggish economy, according to Bloomberg News surveys. Following the collapse of both agricultural and energy commodity prices in Q4’18, the prevailing trend of low inflation across the developed economic world is expected spread to New Zealand’s shore. Quarterly price pressures are expected in at +0.3% after having gained +0.1% in Q4’18, while the yearly reading is due in at +1.7% from +1.9%.

Despite the expected decline in inflation readings, traders may want to be alert for potentially better than expected price pressures. New Zealand Terms of Trade likely rebounded in Q1’19 because of a sharp rebound in milk product prices. The New Zealand Global Dairy Trade (GDT) Price Index was up nearly 17% in the first quarter, which should have helped inflation readings stabilize.

As such, even if inflation remains below the RBNZ’s medium-term target of +2%, a ‘beat’ on the data may see rates markets fail to become any more dovish than they currently are priced. After all, rates markets are pricing-in a 54.9% chance of a 25-bps rate cut by June 2019. Simply pushing back the timing of the first expected hike to September 2019 could provoke a short-term rally by the New Zealand Dollar.

Pairs to Watch: AUDNZD, NZDJPY, NZDUSD

NZDUSD Technical Forecast: Daily Price Chart (June 2018 to April 2019) (Chart 1)

nzdusd price chart, nzdusd price forecast, nzdusd price, nzdusd forecast, nzdusd chart

Since bottoming out of its 2018 downtrend in early-November, NZDUSD has spent most of 2019 consolidating in a symmetrical triangle. In April so far, price has broken down through the March low at 0.6745 and temporarily broken through the February low at 0.6720, culminating in a break of the uptrend from the October 2018 and January 2019 lows.

With price action on Friday falling short of producing a bullish outside engufling bar, the jury remains undecided on whether or not the recent breakdown lower may indeed me a false breakout. In the coming days, a return back within the symmetrical triangle would validate this point of view, and in turn suggest that the odds of return back towards symmetrical triangle resistance (coming in near 0.6900) would increase materially; a better than expected Q1’19 New Zealand CPI report could be the catalyst required. If NZDUSD price breaks below 0.6720, the odds increase that the triangle is coming in to the downside.

IG Client Sentiment Index: NZDUSD (April 15, 2019) (Chart 2)

IGCS, IG Client Sentiment Index, NZDUSD price chart, NZDUSD price forecast, NZDUSD chart

NZDUSD: Retail trader data shows 67.6% of traders are net-long with the ratio of traders long to short at 2.08 to 1. In fact, traders have remained net-long since Apr 02 when NZDUSD traded near 0.67899; price has moved 0.4% lower since then. The number of traders net-long is 3.6% higher than yesterday and 9.2% lower from last week, while the number of traders net-short is 21.5% higher than yesterday and 10.0% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests NZDUSD prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed NZDUSD trading bias.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX