NZD/USD Losses Accelerate as RBNZ Endorses Dovish Outlook

2016-10-11 16:45:00

Talking Points:

- USD/JPY Holds Monthly Opening Range Ahead of Fed Event Risk.

- NZD/USD Losses Accelerate as RBNZ Endorses Dovish Outlook.

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
USD/JPY	103.41	104.07	103.31	20	76

USD/JPY Daily

Chart - Created Using Trading View

The failed test of the monthly opening range may spur range-bound prices in USD/JPY as market attention turns to the slew of Fed rhetoric on tap over the remainder of the week; broader outlook remains tilted to the downside as price & the Relative Strength Index (RSI) preserve the bearish formations from earlier this year, with near-term resistance holding at 104.20 (61.8% retracement).
With Fed Funds Futures now highlighting a 70% probability for a December rate-hike, fresh comments from the 2016 voting-members (New York Fed President William Dudley, Kansas City Fed President Esther George, Boston Fed President Eric Rosengren and Chair Janet Yellen)may fuel the near-term advance in USD/JPY should the fresh batch of central bank rhetoric boost interest-rate expectations; however, the pair may continue to come off of the monthly high (104.15) should the key officials endorse a ‘gradual’ path in normalizing monetary policy.
Will keep a close eye on the narrow range, with a break/close below 102.60 (38.2% expansion) raising the risk of a move back towards 102.10 (100% expansion), followed by 101.20 (50% expansion).

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
NZD/USD	0.7069	0.7142	0.7049	67	93

NZD/USD Daily

Chart - Created Using Trading View

NZD/USD extends the losses from earlier this week as Reserve Bank of New Zealand (RBNZ) Assistant Governor John McDermott endorses a dovish outlook for monetary policy and reiterates that the ‘current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range,’ and the New Zealand dollar stands at risk of facing a further decline over the days ahead as a head-and-shoulders top formation appears to be panning out; measured move highlights the risk for a break below the 0.7000 handle.
Growing speculation for another rate-cut at the RBNZ’s last 2016 policy meeting on November 10 may continue to drag on the exchange rate, with the region’s 3Q Consumer Price Index (CPI) report due out on October 18 likely to shape market expectations as the central bank struggles to achieve the 1 to 3 percent target-band for inflation.
Will keep a close eye on the RSI as it flirts with oversold territory, with a break/close below 0.7050 (78.6% retracement) raising the risk for a move back towards the Fibonacci overlap around 0.6950 (38.2% retracement) to 0.6970 (50% retracement) which coincides with the July low (0.6950).

The DailyFX Speculative Sentiment Index (SSI) shows the USD/JPY ratio continues to narrow from the 2016 extreme of +6.03, while traders have flipped to net-long NZD/USD during the second-full week of October.
USD/JPY SSI currently sits at +1.37 as 58% of traders are long, with short positions 8.7% higher from the previous week, while open interest stands 10.8% below the monthly average.
NZD/USD SSI currently sits at +1.47 as 60% of traders are long, with long positions 32.4% higher from the previous week, while open interest stands 1.3% below the monthly average.
Will keep a close eye on the advance in NZD/USD SSI as the retail appears to be stuck on the wrong side of the market following the near-term decline.

Why and how do we use the SSI in trading? View our video and download the free indicator here