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NZD/USD Eyes October High Following RBNZ Rate Cut

NZD/USD Eyes October High Following RBNZ Rate Cut

2015-12-10 18:25:00
David Song, Strategist
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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

NZD/USD Daily Chart

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

AUD/USD Daily Chart
  • 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):

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

12062.68

12075.05

12040.54

-0.02

72.90%

NZD/USD Eyes October High Following RBNZ Rate CutUSDOLLAR Daily Chart

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).
NZD/USD Eyes October High Following RBNZ Rate Cut

*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."

Three Factors Warn of Perfect Storm in FX Markets - Caution Advised

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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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