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NZD/USD Flirts With Former-Support; Outlook Mired by Bearish Channel

NZD/USD Flirts With Former-Support; Outlook Mired by Bearish Channel

David Song, Strategist

Talking Points:

- NZD/USD Flirts With Former-Support; Outlook Mired by Downward Trending Channel.

- EUR/USD Sits Tight Ahead of FOMC; Interest Rate Dot-Plot to Take Center Stage.

DailyFX
CurrencyLastHighLowDaily Change (pip)Daily Range (pip)
NZD/USD0.72110.72320.71811851

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using Trading View

  • NZD/USD continues to flirt with the former-support zone around 0.7200 (38.2% retracement) to 0.7240 (61.8% retracement) as the exchange rate climbs to a fresh monthly high of 0.7232, with the pair at risk of working its way towards channel resistance as it holds above 0.7040 (50% retracement) throughout the first-half of December; the broader outlook remains mired by the bearish trend carried over from September, with a break/close below 0.6950 (38.2% retracement) negating the scope for a longer-term bull-flag formation.
  • With the New Zealand Institute of Economic Research (NZIER) raises its growth and inflation forecast for 2017, positive developments coming out of the real economy may encourage the Reserve Bank of New Zealand (RBNZ) to gradually move away from its easing-cycle over the coming months, and Governor Graeme Wheeler may adopt a more hawkish tone in the year ahead as ‘annual inflation is expected to rise from the December quarter, reflecting the policy stimulus to date, the strength of the domestic economy, and reduced drag from tradables inflation.’
  • A break/close above the former-support zone around 0.7200 (38.2% retracement) to 0.7240 (61.8% retracement) may spur a test of channel resistance, along with the Fibonacci overlap around 0.7330 (38.2% retracement) to 0.7360 (61.8% expansion).
CurrencyLastHighLowDaily Change (pip)Daily Range (pip)
EUR/USD1.06361.06541.0604150

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • EUR/USD holds a narrow range ahead of the Federal Open Market Committee’s (FOMC) last interest rate decision for 2016, with the broader outlook tilted to the downside as a bear flag formation appears to be unfolding below the Fibonacci overlap around 1.0780 (100% expansion) to 1.0800 (23.6% retracement).
  • Even though Chair Janet Yellen and Co. are widely anticipated to raise the benchmark interest rate by 25bp, the fresh projections for growth, inflation and the interest rate may have a greater role in influencing the near-term outlook for the U.S. dollar amid the upcoming rotation within the committee, with Chicago Fed President Charles Evans, Philadelphia Fed President Patrick Harker, Dallas Fed President Robert Kaplan and Minneapolis Fed President Neel Kashkari slate to vote on the FOMC in 2017.
  • Lack of momentum to push back above 1.0660 (50% expansion) may spur a more meaningful test of the 1.0500 (50% expansion) handle, with the next downside region of interest coming in around 1.0410 (61.8% expansion).

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GBP/USD Weakness to Be Viewed as Opportunity

--- Written by David Song, Currency Analyst

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

To be added to David's e-mail distribution list, please follow this link.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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