We don’t have a fixed trade call today but our general strategy for the coming sessions will be to sell NZD against GBP or USD on pullbacks that exceed the average daily range for those pairs.
Yesterday’s NY session was busy as we saw three market-moving releases. Yellen’s testimony was hawkish as she made positive remarks about the US recovery and confirmed rates will rise this year. The greenback strengthened across the board. The highly anticipated BOC rate decision saw them cut to 0.5% and turn decidedly dovish. They also lowered forecasts for GDP and CPI. This saw aggressive downside in CAD across the board with USDCAD and GBPCAD shooting up 130 and 200 pips respectively within seconds of release. CAD continues to weaken and we expect this to continue for coming sessions. The GDT Price Index fell for the 18th consecutive week. The index printed -10.7%. This essentially seals the fate of the RBNZ decision next week as the New Zealand economy will be greatly affected by the low dairy prices.
To add to bearish Kiwi sentiment, CPI released during the Asian session showed that consumer inflation in NZ rose only 0.4% for the second quarter. This puts annual inflation for the 12 months ending June 30 at a mere 0.3%. Although this quarterly reading is at least positive, up from the last two quarters of deflation, both the y/y and q/q readings were below economists’ forecasts. Many major banks are now predicting several more interest rate cuts this year from the RBNZ; Barclays forecasts four more cut this year, which will see the RBNZ’s OCR at 2.25%. Aussie has fallen in sympathy, down at 0.7350.
We will be monitoring levels of support and resistance in unison with any impactful news and the underlying fundamentals in order to find a high probability trade. Support and resistance includes previous highs and lows (horizontal s/r), trendlines, moving averages, fibonacci retracements, daily pivot levels and round numbers. These levels of support and resistance are most effective when there are several of them converging at the same area (confluence).
Other Market Moving News:
Today we see the ECB rate decision and press conference, weekly jobless claims from the US, the second day of Yellen’s testimony and Philly Fed business outlook. Once again, if you wish to recap those upcoming events take a look at my weekly Forex News Events outlook here.