NZD/USD Rebound Clears First Hurdle Ahead of RBNZ’s FSR

2016-11-29 17:35:00 David Song

Talking Points:

- NZD/USD Rebound Clears First Hurdle Ahead of RBNZ’s Financial Stability Report.

- USD/JPY Pops to 113.34 on Upward Revision to 3Q U.S GDP; RSI Holds in Overbought Territory.

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
NZD/USD	0.7120	0.7129	0.7066	47	63

NZD/USD Daily

Chart - Created Using Trading View

Failure to preserve the upward trend from earlier this year suggests a shift in market behavior is underway, but NZD/USD looks poised to extend the recent series of higher highs & lows as it pushes back above the former-support around the 0.7100 (38.2% expansion) handle offer new resistance; broader outlook for kiwi-dollar is becoming increasingly bearish ahead of 2017 as the pair appears to be carving a downward trending channel.
Even though the New Zealand Institute of Economic Research a(NZIER) anticipates the Reserve Bank of New Zealand (RBNZ) to move away from its easing-cycle, the Financial Stability Report (FSR) due out on November 30 may encourage speculation for additional monetary support as policymakers warn ‘numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly,’ and fresh comments from Governor Graeme Wheeler may dampen the appeal of the kiwi should the central bank head toughen the verbal intervention on the local currency and stress ‘a decline in the exchange rate is needed.’
Will watch the topside hurdles going into the end of the month especially as the Relative Strength Index (RSI) rebounds ahead of oversold territory, with a close above 0.7100 (38.2% expansion) raising the risk for a move back towards 0.7200 (38.2% retracement) to 0.7240 (61.8% retracement).

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
USD/JPY	112.65	113.34	111.63	71	171

USD/JPY Daily

Chart - Created Using Trading View

After taking out the May high (111.45), USD/JPY appears to be coiling for a move higher as the pair carves a bull-flag formation, while the RSI continues to sit in overbought territory; need the oscillator to highlight a textbook sell-signal (move below 70) to pave the way for a larger pullback.
The upward revision in 3Q U.S. GDP paired with the jump in the Conference Board’s Consumer Confidence Survey (highest reading since July 2007) may keep the dollar-yen afloat ahead of the highly anticipated Non-Farm Payrolls (NFP) report, which is projected to show another 175K expansion in November, with the broader outlook for USD/JPY becoming increasingly constructive as it breaks out of the downward trend from earlier this year.
Near-term bias is tilted to the downside following the failed attempt to break/close above 114.00 (23.6% retracement), with the first downside region of interest coming in around 110.90 (78.6% retracement) followed by 110.20 (50% retracement).

The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-short USD/JPY since November 10 even as the pair breaks out of the downward trend from earlier this year, while traders have flipped net-short NZD/USD going into the end of the month.
USD/JPY SSI sits at -1.57 as 39% of traders are long, with long positions 12.6% lower from the previous week even as open interest stands 9.7% above the monthly average.
NZD/USD SSI sits at -1.04 as 49% of traders are long, with short positions 24.7% higher from the previous week, while open interest stands 1.5% below the 30-day average.
With the retail crowd stuck on the wrong side, a further advance in USD/JPY may coincide with a further shift in positioning as the SSI pushes into negative territory for the first time since positioning as the retail crowd appears to be stuck on the wrong side of the market especially as the SSI makes a meaningful push into negative territory for the first time since 2014.

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