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NZD/USD Comes Up Against April High; Sterling Weathers Terror Attack

NZD/USD Comes Up Against April High; Sterling Weathers Terror Attack

2017-05-23 15:00:00
David Song, Strategist
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Talking Points:

- NZD/USD Comes Up Against April High; 2016 Bearish Formations Remain Intact.

- Sterling Weathers U.K. Terror Attack; Risks Range Bound Conditions with Snap Election in Focus.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

NZD/USD

0.7028

0.7047

0.6990

32

57

NZD/USD extends the advance from earlier this week, with the pair quickly coming up against the April high (0.7053), and a key test appears to be underway as market participants scale back bets for three Fed rate-hikes in 2017.

Even though Fed Fund Futures continue to highlight a greater than 70% probability for a June rate-hike, market participants are now pricing a less than 50% chance for a move in December, and the U.S. dollar may continue to give back the advance following the Presidential election amid the growing clouds surrounding the fiscal outlook. At the same time, the fresh projections coming out at the Federal Open Market Committee’s (FOMC) June 14 interest rate decision may fail to boost the appeal of the greenback as officials project a terminal fed funds rate closes to 3.00%, and the reserve currency stands at risk for a larger correction should the central bank refrain from revealing a more detailed exit strategy.

NZD/USD Daily

NZD/USD Daily Chart

Chart - Created Using Trading View

  • Keep in mind the broader outlook for NZD/USD remains tilted to the downside as price & the Relative Strength Index (RSI) preserve the bearish formations carried over from 2016, and the longer-term patterns may continue to unfold over the coming months especially as Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler looks poised to retain the record-low cash rate into his departure in September.
  • As a result, NZD/USD may mimic the price action in April, with the pair at risk of facing a similar fate the last time it failed to close above the 0.7040 (50% retracement) hurdle; first downside region of interest comes in around 0.6950 (38.2% retracement) to 0.6980 (23.6% expansion), with near-term support standing around 0.6820 (23.6% retracement) to 0.6840 (38.2% retracement).

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Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.2977

1.3005

1.2953

23

52

The British Pound weathers the worst U.K. terror attack in over a decade, with the GBP/USD exchange rate largely preserving the advance from earlier this month. However, growing uncertainty surrounding the snap election in June may temper the relief rally as Prime Minister Theresa May seeks a more unified government ahead of the ‘Brexit’ negotiations starting on June 19.

With that said, pound-dollar may continue to consolidate over the coming days especially as a major U.S. holiday weekend quickly approaches, but key developments coming out the political arena may shape the near-term outlook for Sterling especially as the Bank of England (BoE) endorses a wait-and-see approach for monetary policy.

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using Trading View

  • The string of failed attempts to close below 1.2860 (61.8% retracement) keeps the path of least resistance tilted to the topside, with the next hurdle coming in around 1.3090 (38.2% retracement) to 1.3120 (78.6% retracement) followed by 1.3300 (100% expansion) to 1.3370 (78.6% expansion).
  • Keep in mind the Relative Strength Index (RSI) continues to deviate with price as the oscillator fails to push into overbought territory and threatens the bullish formation carried over from March; despite the bearish trigger, price needs to show a similar behavior, with a break/close below the Fibonacci overlap around 1.2630 (38.2% expansion) to 1.2680 (50% retracement) seen as a more meaningful signal to highlight a potential shift in market behavior.

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IG Sentiment
  • Retail trader data shows 54.5% of traders are net-long NZD/USD with the ratio of traders long to short at 1.2 to 1. In fact, traders have remained net-long since May 12 when NZD/USD traded near 0.68435; price has moved 2.8% higher since then. The number of traders net-long is 10.4% lower than yesterday and 11.8% lower from last week, while the number of traders net-short is 24.7% higher than yesterday and 7.8% lower from last week.
  • Retail trader data shows 39.9% of traders are net-long with the ratio of traders short to long at 1.51 to 1. In fact, traders have remained net-short since Apr 12 when GBPUSD traded near 1.24644; price has moved 4.1% higher since then. The number of traders net-long is 3.3% higher than yesterday and 10.1% lower from last week, while the number of traders net-short is 0.6% higher than yesterday and 1.2% lower from last week.

For More Information on Retail Sentiment, Check Out the New Gauge Developed by DailyFX Based on Trader Positioning

NZD/USD Comes Up Against April High; Sterling Weathers Terror Attack

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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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