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Talking Points:

- EUR/USD Recovery Takes Shape as ECB Officials See ‘Notable’ Euro-Area Growth.

- NZD/USD Eyes 2017-Low Following Cautious RBNZ FSR; RSI Clouded with Mixed Signals.

DailyFX TableEUR/USD

EUR/USD snaps the series of lower highs & lows from earlier this week, with the pair at risk for a more meaningful recovery as the European Central Bank (ECB) adopts an improved outlook for the monetary union.

Even though the ECB is on course to carry the quantitative easing (QE) program into 2018, Governing Council member Peter Praet asserted that the ‘the breadth of the expansion is notable,’ and went onto say that the recent data coming out of the euro-area is ‘reassuring for the growth outlook because recoveries tend to be firmer and more robust when they are broad-based.’ The recent comments suggest the ECB will continue to change its tune over the coming months as ‘reforms have generally been stepped up in the euro area,’ and the bullish EUR/USD behavior may persist going into the end of the year as President Mario Draghi and Co. gradually move away from the easing-cycle.

With that said, EUR/USD stands at risk of extending the advance from the November-low (1.1554), with the topside targets on the radar especially as both price and the Relative Strength Index (RSI) break out of the bearish formations from September.

EUR/USD Daily Chart

EUR/USD Daily Chart
  • Topside targets are back on the radar for EUR/USD following the break of channel resistance, with the former-resistance zone around 1.1810 (61.8% retracement) to 1.1860 (161.8% expansion) offering support.
  • A break/close above the 1.1960 (38.2% retracement) hurdle raises the risk for a run at the 2017-high (1.2092), with the next region of interest coming in around 1.2130 (50% retracement).
  • Keeping a close eye on the Relative Strength Index (RSI) as it approaches overbought territory, with a break above 70 raising the risk for a further advance in EUR/USD as the bullish momentum gathers pace.

NZD/USD struggles to retain the advance from earlier this year even as the Reserve Bank of New Zealand (RBNZ) pledges to ease the loan-to-value ratio (LVR) restrictions from October 2016, and the pair may continue to give back the rebound from the 2017-low (0.6780) as the central bank appears to be in no rush to lift the cash rate off of the record-low.

The RBNZ’s most recent Financial Stability Report (FSR) suggests acting Governor Grant Spencer will continue to endorse a wait-and-see approach for monetary policy as New Zealand remains vulnerable to ‘unintended consequences associated with an unwinding of unconventional monetary policies, a disruptive adjustment in China’s financial system following prolonged rapid credit growth, and high household debt in Australia.’ In turn, the RBNZ may merely attempt to buy more time at its first 2018 interest rate decision on February 8, with the New Zealand dollar at risk of facing additional headwinds over the coming months especially as the coalition government under Prime Minister JacindaArdern pledge to review and revise the central bank’s mandate.

NZD/USD Daily Chart

NZD/USD Daily Chart
  • Downside targets are coming back on the radar for NZD/USD as it snaps the bullish sequence from earlier this week after failing to break above the 0.6940 (61.8% expansion) to 0.6950 (38.2% retracement) hurdle, with the recent series of lower highs & lows raising the risk for further losses.
  • Break/close below the 0.6820 (23.6% retracement) to 0.6870 (50% retracement) region raises the risk for a move back towards the 2017-low (0.6780), which largely lines up with the Fibonacci overlap around 0.6780 (100% expansion) to 0.6790 (50% retracement).
  • Nevertheless, a look at the Relative Strength Index (RSI) suggests NZD/USD may continue to consolidate over the coming days amid the mixed signals surrounding the oscillator, but the broader outlook remains titled to the downside as it preserves the downward trend carried over from the summer months.

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--- Written by David Song, Currency Analyst

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