Talking Points:

- NZD/USD Risks Larger Rebound as RSI Divergence Takes Shape.

- USD/JPY Carves Lower Highs & Lows; Outlook Mired by Failed Test of March High.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

NZD/USD

0.6890

0.6918

0.6846

41

72

Kiwi pares the decline following the Reserve Bank of New Zealand (RBNZ) interest rate decision as the region’s 1Q Retail Sales report exceeded market expectations, with household spending expanding 1.5% amid forecasts for a 0.9% print. Despite the positive development, the broader outlook for NZD/USD remains tilted to the downside as Governor Graeme Wheeler and Co. stick to a dovish script, and the pair may continue to carve a longer-term series of lower-highs and lows throughout 2017 as the Federal Open Market Committee (FOMC) remains on course to further normalize monetary policy over the coming months.

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using Trading View

  • Nevertheless. the recent decline in the exchange rate appears to be getting exhausted as the Relative Strength Index (RSI) deviates with price, and the rebound from the 2017-low (0.6818) may gather pace as the momentum indicator continues to come off of oversold territory and extends the bullish formation from March.
  • The series of failed attempts to close below the Fibonacci overlap around 0.6820 (23.6% retracement) to 0.6840 (38.2% retracement) raises the risk for a near-term correction in NZD/USD, with the first topside hurdle coming in around 0.6950 (38.2% retracement) to 0.6980 (23.6% expansion) followed by 0.7040 (50% retracement).

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Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

113.59

113.73

113.12

37

61

The Japanese Yen struggles to hold its ground as risk sentiment perked up during the European trade, but the USD/JPY exchange rate may continue to give back the advance from the April-low (108.13) as it carves a near-term series of lower-highs & lows.

Even though the Federal Open Market Committee (FOMC) is widely anticipated to deliver a 25bp rate-hike in June, market participants appear to be taming the longer-term outlook for monetary policy amid the mixed data prints coming out of the U.S. economy, with the downside targets in focus following the failed attempt to test the March high (115.50).

USD/JPY Daily

USD/JPY Daily Chart

Chart - Created Using Trading View

  • Broader outlook for USD/JPY has become increasingly constructive as the pair breaks out of the downward trending channel carried over from December, but the lack of momentum to break/close above 114.30 (23.6% retracement) may generate a near-term pullback especially as the RSI highlights a similar behavior and comes off of overbought territory.
  • In turn, USD/JPY may face a meaningful test over the coming days, with the Fibonacci overlap around 112.40 (61.8% retracement) to 112.80 (38.2% expansion) in focus as it lines up with former channel resistance; a meaningful reaction at the key region should defend a bullish outlook for the pair.
  • Nevertheless, a move back below 112.40 (61.8% retracement) may undermine the recent advance in the exchange rate and open up the next downside region of interest around 111.10 (61.8% expansion) to 111.60 (38.2% retracement).

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IG Sentiment
  • Retail trader data shows 52.1% of traders are net-long NZD/USD with the ratio of traders long to short at 1.09 to 1. The number of traders net-long is 6.9% lower than yesterday and 7.2% lower from last week, while the number of traders net-short is 13.6% lower than yesterday and 16.2% higher from last week.
  • Retail trader data shows 47.6% of traders are net-long USD/JPY with the ratio of traders short to long at 1.1 to 1. The number of traders net-long is 0.5% higher than yesterday and 4.4% higher from last week, while the number of traders net-short is 6.7% higher than yesterday and 0.2% higher from last week.

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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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