NZD/USD Breaks Monthly Opening Range Ahead of NZ Trade Balance Report

2017-05-22 15:16:00

Talking Points:

- NZD/USD Breaks Monthly Opening Range Ahead of NZ Trade Balance Report.

- USD/JPY Holds Above 200-Day SMA as Risk Appetite Returns; BoJ Kuroda on Tap.

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
NZD/USD	0.6989	0.6997	0.6911	64	86

NZD/USD looks poised for a larger recovery as it breaks out of a narrow range and climbs to a fresh monthly high of 0.6997, but the broader outlook remains tilted to the downside as the Reserve Bank of New Zealand (RBNZ) remains in no rush to lift the cash rate from the record-low of 1.75%.

With New Zealand’s Trade Balance anticipated to show a narrowing surplus in April, signs of slower growth may encourage RBNZ Governor Graeme Wheeler to preserve the accommodative policy stance ahead of his departure in September, and the central bank may endorse a wait-and-see approach throughout 2017 as officials reiterate ‘numerous uncertainties remain and policy may need to adjust accordingly.’ In turn, a marked downturn in the term of trade may undermine the rebound in the exchange rate, and the diverging paths for monetary policy continues to cast a long-term bearish outlook for NZD/USD especially as the Federal Open Market Committee (FOMC) is widely anticipated to deliver a 25b rate-hike in June.

NZD/USD Daily

Chart - Created Using Trading View

The string of failed attempts to break/close below the near-term support zone around 0.6820 (23.6% retracement) to 0.6840 (38.2% retracement) may fuel a larger correction especially as NZD/USD breaks out of the monthly range, with a close above the Fibonacci overlap around0.6950 (38.2% retracement) to 0.6980 (23.6% expansion) opening up the next region of interest around 0.7040 (50% retracement).
Will favor the topside targets as long as the Relative Strength Index (RSI) preserves the upward trend from March, but the broader outlook for the kiwi-dollar exchange rate remains tilted to the downside as price & the momentum indicator retain the bearish formations carried over from 2016.

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Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
USD/JPY	111.06	111.61	110.88	24	73

USD/JPY may stage a larger rebound over coming days as it breaks the series of lower highs & lows from earlier this month, and the recent recovery in risk appetite may open up the topside targets as market participants utilize the Japanese Yen as a funding-currency.

At the same time, fresh comments from Bank of Japan (BoJ) Governor Haruhiko Kuroda may also weigh on the Yen as the central bank continues to embark on its Quantitative/Qualitative Easing (QQE) with Yield-Curve Control, but the positive developments coming out of the real economy may push the BoJ to soften its dovish tone especially as the region’s Consumer Price Index (CPI) is anticipated to show the headline reading for inflation picking up in April.

USD/JPY Daily

Chart - Created Using Trading View

USD/JPY appears to be turning around ahead of the 200-Day SMA (109.65), which lines up with the Fibonacci overlap around 109.40 (50% retracement) to 110.00 (78.6% expansion), and a closing price above 111.60 (38.2% retracement) may open up the next region of interest around 112.40 (61.8% retracement) to 112.80 (38.2% expansion) especially as global benchmark equity indies extend the rebound from the previous week.
Broader outlook for USD/JPY has become more constructive as it threatens the descending channel from December, but the lack of momentum to close above the 111.60 (38.2% retracement) hurdle may keep the pair capped ahead of the next FOMC interest rate decision on June 14 as market participants weigh the outlook for monetary policy.
Even though Fed Fund Futures now highlight an 80% probability for a June rate-hike, the updated forecasts coming out of the central bank may undermine the bullish sentiment surrounding the greenback should Fed officials continue to forecast a terminal fed funds rate close to 3.00%.
With that said, a break/close below the Fibonacci overlap around 109.40 (50% retracement) to 110.00 (78.6% expansion) may spur a more meaningful run at the April-low (108.13), which lines up with the next downside region of interest around 108.30 (61.8% retracement) to 108.40 (100% expansion).

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Retail trader data shows 66.4% of traders are net-long NZD/USD with the ratio of traders long to short at 1.97 to 1. In fact, traders have remained net-long since May 12 when NZD/USD traded near 0.68435; price has moved 1.8% higher since then. The percentage of traders net-long is now its highest since Apr 30 when NZDUSD traded near 0.68687. The number of traders net-long is 2.3% higher than yesterday and 3.7% lower from last week, while the number of traders net-short is 23.9% lower than yesterday and 45.5% lower from last week.
Retail trader data shows 57.8% of traders are net-long USD/JPY with the ratio of traders long to short at 1.37 to 1. The number of traders net-long is 2.4% higher than yesterday and 16.9% higher from last week, while the number of traders net-short is 12.2% higher than yesterday and 20.2% lower from last week.

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