NZD/USD Remains Capped Ahead of NZ 4Q CPI; Fed Fund Futures Pick Up

2017-01-20 17:12:00

Talking Points:

- EUR/USD Consolidates Ahead of December High (1.0873); ECB Survey Undermines Dovish Outlook.

- NZD/USD Remains Capped Ahead of NZ 4Q CPI; Fed Fund Futures Pick Up Following Yellen Comments.

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
EUR/USD	1.0678	1.0694	1.0625	14	69

EUR/USD Daily

Chart - Created Using Trading View

The recent advance in EUR/USD appears to be getting exhausted as the European Central Bank (ECB) continued to endorse a dovish outlook at its first policy meeting for 2017, and the pair may struggle to hold its ground ahead of the Federal Reserve’s interest rate decision on February 1 as Chair Janet Yellen and Co. appear to be on course to further normalize monetary policy over the coming months; with the broader outlook tilted to the downside, will keep a close eye on the Relative Strength Index (RSI) for confirmation as it appears to be responding to bearish formation carried over from 2015.
Even though the ECB’s survey of professional forecasters highlighted an improved outlook for the euro-area, current projections still show inflation running below the 2% target through 2019, and President Mario Draghi and Co. may boost their efforts to ward off a ‘taper tantrum’ as the Governing Council remains on course to narrow its asset-purchases to EUR 60B/month starting in April; at the same time, the U.S. 4Q Gross Domestic Product (GDP) report due out next week may sway interest rate expectations as the economy is expected to grow an annualized 2.1% following the 3.5% expansion during the three-months through September.
EUR/USD may continue to consolidate over the coming days as it struggles to make a more meaningful run at the December high (1.0873), with a move/close below 1.0600 (23.6% expansion) opening up the next downside around 1.0470 (38.2% expansion) to 1.0500 (50% expansion).

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
NZD/USD	0.7150	0.7225	0.7129	40	96

NZD/USD Daily

Chart - Created Using Trading View

Even though NZD/USD fails to extend the recent series of lower highs & lows, the pair appears to have made another failed run at the December high (0.7239) as it quickly pulls back from a fresh weekly high of 0.7224; may see range-bound conditions persist going into the week ahead as market attention turns to New Zealand’s 4Q Consumer Price Index (CPI), which is projected to increase an annualized 1.3%, but the RSI appears to be flashing a bearish trigger as it struggles to preserve the bullish formation carried over from the previous month.
Fed Fund Futures have picked up following the fresh comments from Chair Yellen, with market participants now pricing a greater than 70% probability for a June rate-hike as the Federal Open Market Committee (FOMC) is ‘closing in’ on its dual mandate; the monetary policy outlook may continue to foster a long-term bearish outlook for NZD/USD, but the Reserve Bank of New Zealand (RBNZ) may have limited room to implement lower borrowing-costs as the region faces heightening price pressures accompanied by the widening trade deficit .
With the near-term advance capped around 0.7240 (61.8% retracement), NZD/USD may continue to give back the advance from earlier this month, with a break/close below 0.7040 (50% retracement) opening up the next downside area of interest around 0.6950 (38.2% retracement).

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