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EUR/USD Weighed by Dovish ECB Rhetoric; RSI Trigger on Tap?

EUR/USD Weighed by Dovish ECB Rhetoric; RSI Trigger on Tap?

2017-04-06 14:58:00
David Song, Strategist
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Talking Points:

- New Zealand Dollar Outperforms Ahead of U.S. Non-Farm Payrolls (NFP) Report.

- EUR/USD Weighed by Dovish ECB Rhetoric; RSI Trigger on Tap?

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

NZD/USD

0.6977

0.6990

0.6961

13

29

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using Trading View

  • The New Zealand dollar outperforms its major counterparts ahead of the U.S. Non-Farm Payrolls (NFP) report, but the rebound in NZD/USD may be short-lived as the world’s largest economy is anticipated to add another 180K jobs in March.
  • Despite the ongoing expansion in job growth, the report may spark a mixed market reaction as Average Hourly Earnings are expected to slow to an annualized 2.7% from 2.8% in February, and signs of subdued wage growth may dampen the appeal of the dollar as it drags on interest-rate expectations.
  • With more Federal Reserve officials (New York Fed President William Dudley, Chair Janet Yellen and Minneapolis Fed President Neel Kashkari) schedule to speak over the coming days, market participants may pay increased attention to the fresh batch of central bank rhetoric as the FOMC shows a greater willingness to further normalize monetary policy over the coming months.
  • Broader outlook for NZD/USD remains tilted to the downside as it continues to operate within the downward trending channel carried over from the previous year, with a break/close below the Fibonacci overlap around 0.6950 (38.2% retracement) to 0.6980 (23.6% retracement) raising the risk for a move back towards the March low (0.6890); however, a dismal NFP report may encourage a larger rebound in the kiwi-dollar with the first topside hurdle coming in around 0.7040 (50% retracement) to 0.7060 (38.2% retracement).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

EUR/USD

1.0661

1.0684

1.0629

2

55

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • The Euro struggles to hold its ground as the European Central Bank (ECB) keeps the door open to further embark on its easing-cycle, and the EUR/USD exchange rate may continue to give back the advance from the previous month amid the deviating paths for monetary policy; the failed attempt to break the bearish formation from 2016 keeps the broader outlook tilted to the downside, with the Relative Strength Index (RSI) on the cusp of highlighting a near-term trigger as the oscillator comes up against trendline support.
  • It seems as though the ECB is stepping up its efforts to tame interest rate expectations as President Mario Draghi argues the central bank has yet to see ‘sufficient evidence to materially alter our assessment of the inflation outlook,’ and it seems though the Governing Council is in no rush to start normalizing monetary policy as the Governing Council retains its pledge to keep the benchmark interest rate ‘at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases; the fresh comments suggests the ECB will stick to zero-interest rate policy (ZIRP) throughout 2017 as the committee struggles to achieve its one and only mandate for price stability.
  • In contrast, Fed Fund Futures are now pricing a greater than 60% probability for a June rate-hike as the Federal Open Market Committee (FOMC) Minutes revealed a growing discussion to adjust the balance sheet, and it seems as though the central bank is on course to unwind its quantitative easing (QE) program later this as the U.S. economy approaches ‘full-employment;’ nevertheless, Chair Janet Yellen and Co. may continue to project a terminal fed funds rate close to 3.00% as officials persistently warn ‘market-based measures of inflation compensation had remained low; survey-based measures of inflation compensation were little changed on balance.
  • With that said, lack of momentum to close back above the Fibonacci overlap around 1.0660 (50% expansion) to 1.0680 (78.6% expansion) may open up the downside targets especially as the RSI threatens the bullish formation carried over from November, with the next region of interest coming in around 1.0600 (23.6% expansion) followed by 1.0470 (38.2% expansion) to 1.0500 (50% expansion).

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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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