Never miss a story from David Song

Subscribe to recieve updates on publications
Please enter valid First Name
Please fill out this field.
Please enter valid Last Name
Please fill out this field.
Please enter valid email
Please fill out this field.
Please select a country

I’d like to receive information from DailyFX and IG about trading opportunities and their products and services via email.

Please fill out this field.

Your Forecast Is Headed to Your Inbox

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk.

Your demo is preloaded with £10,000 virtual funds, which you can use to trade over 10,000 live global markets.

We'll email you login details shortly.

Learn More about Your Demo

You are subscribed to David Song

You can manage your subscriptions by following the link in the footer of each email you will receive

An error occurred submitting your form.
Please try again later.

Talking Points:

- NZD/USD Recovery Vulnerable to Dovish RBNZ Parliament Testimony.

- GBP/USD November Rebound Unravels Ahead of BoE Rhetoric.

DailyFX TableNZD/USD

NZD/USD extends the rebound from earlier this month, with the pair quickly approaching the November-high (0.6980), but the Reserve Bank of New Zealand’s (RBNZ) Financial Stability Report (FSR) may rattle the near-term recovery in the exchange rate should the central bank cast a dovish outlook for monetary policy.

With acting Governor Grant Spencer scheduled to testify in front of Parliament’s Finance and Expenditure committee, the central bank head may merely attempt to buy more time especially as the coalition government under Prime Minister JacindaArdern pledge to review and revise the RBNZ’s mandate. With that said, Governor Spencer is likely to reiterate that ‘monetary policy will remain accommodative for a considerable period,’ and a batch of dovish rhetoric may ultimately dampen the appeal of the New Zealand dollar as the RBNZ remains in no rush to lift the cash rate off of the record-low.

NZD/USD Daily Chart

NZD/USD Daily Chart
  • Topside targets remain on the radar for NZD/USD as the pair initiates a series of higher highs & lows, while the Relative Strength Index (RSI) appears to be breaking out of the bearish formation carried over from August.
  • Break above the 0.6940 (61.8% expansion) to 0.6950 (38.2% retracement) region raises the risk of seeing a run at the monthly-high (0.6980), with the next topside hurdle coming in around 0.6990 (50% expansion).
  • First downside region of interest comes in around 0.6820 (23.6% retracement) to 0.6870 (50% retracement) followed by the 0.6780 (100% expansion) to 0.6790 (50% retracement) which largely lines up with the 2017-low (0.6780).
GBP/USD

The British Pound struggles to hold its ground as the Bank of England’s (BoE) Financial Stability Review revealed five of the seven major U.K. lenders passing the latest stress test, and GBP/USD may continue to face near-term headwinds as Governor Mark Carney and board member David Ramsden are scheduled to speak at an event held by the FICC Markets Standards Board (FMSB).

Even though the BoE ‘judges the U.K. banking system could continue to support the real economy through a disorderly Brexit,’ Monetary Policy Committee (MPC) officials may largely endorse a wait-and-see approach ahead of 2018 as ‘there remain considerable risks to the outlook, which include the response of households, businesses and financial markets to developments related to the process of EU withdrawal.’ As a result, the BoE may continue to tame expectations for an imminent rate-hike, and the fresh batch of central bank rhetoric may dampen the appeal of the British Pound as Governor Carney and Co. appear to be in no rush to further normalize monetary policy.

Keep in mind, the BoE may stay on course to implement one rate-hike per year as ‘the MPC’s most recent assessment of the outlook for inflation and activity, contained in the November Inflation Report, was conditioned on a market path that implied two additional 25 basis point increases in Bank Rate over the three-year forecast period,’ and the pound-dollar exchange rate may exhibit a more bullish behavior over the coming months as the central bank starts to unwind its easing-cycle.

GBP/USD Daily Chart

GBP/USD Daily Chart
  • Broader outlook for GBP/USD remains constructive as the upward trend from earlier this year remains intact, but the pair may continue to pullback from the monthly-high (1.3383) as it initiates a fresh series of lower highs & lows.
  • Keeping a close eye on the Relative Strength Index (RSI) as it appears to be turning around ahead of overbought territory; may see a bearish trigger evolve as the oscillator comes up against trendline support.
  • With the near-term outlook capped by the 1.3370 (78.6% expansion) region, the 1.3210 (50% retracement) hurdle stands on the radar, with the next downside region of interest coming in around 1.3090 (38.2% retracement) to 1.3120 (78.6% retracement) followed by the November-low (1.3039).

New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the FREE DailyFX Beginners guide!

DailyFX Calendar

Click Here for the DailyFX Calendar

Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.