Today’s attention shifts to the RBNZ and EURNZD technical analysis. So what’s next for the Euro? From the look of things, this year alone, the Euro has gained a massive 11% against the Kiwi. However with the rally, we expect the Euro to slow down in the coming weeks if not months.
We can start with the influence of the Fed. The Fed looks likely to hike their fund rates in December after renewed strength in the labor markets. Odds for that rate hike stands at more than 95% according to Fed Fund trackers.
Last week’s Non-Farm payrolls showed that unemployment rate hit a new cyclical lows of 4.1% and despite the unchanged average hourly earnings, the economy churned an extra 261K jobs in October. That is not enough, the service sector also expanded beating expectations to 60.1 Vs 58.5. Because of the hurricane effect, September jobs readings were revised higher to 18K from -33K recorded previously. All these are sold for the greenback.
Going forward, these streams of positive economic data from the US will help prop the USD due to new capital inflows and the positive yields. In this hawkish environment with probable hawkish fed chairs in 2018, expect the 10 year treasury yields to rise as investors expect aggressive fund rate forward guidance come December.
In New Zealand, the new political coalition and their policy should help spur economic growth. Remember after the PM elect was announced, the coalition government tabled a proposal for the RBNZ mandate to be expanded to include labor monitoring. There was reprieve though, there was no mention of inflation or FX intervention and it helped slow down NZD sell off which was 5% down against the USD following the coalition news.
Furthermore, they believe that the economy should be expanding faster than it should be and therefore, they seek to introduce a raft of reforms including minimum wage and inflation control in key cities in New Zealand. Before the NY session concludes, we have the RBNZ announcing their OCR which is expected to remain constant at 1.75% with increasing odds of an upside. New Zealand’s inflationary pressure remains within range and after Mario Draghi confirmed that the ECB would do everything it can to boost inflation, it is likely that the ZIRP will continue for the unforeseeable future. This makes NZD attractive.
Technically, I expect the Kiwi to strengthen going forward. In the weekly and the daily chart, it is hard to ignore the sell signal with a bear divergence pattern in play. Also note that this week’s candlestick could be a confirmation of an Evening Star pattern at the shoulders of a Head and Shoulders pattern. Week ending October 23 ended as an inverted hammer so that is good for bears especially after last week’s bear confirmation. Secondly, the daily chart is testing the 20 period MA and the probability of breaking below the support trend line is high given the bear momentum in the daily chart.
I will trade as follows:
Stop Loss: 1.70
Take Profit: 1.58
Have a good trading day.