Fundamental Overview
The USD came under some pressure at the start of last week following the US CPI report as the data came mostly in line with expectations. In the following days though, we got some hottish data with the US PPI beating expectations by a big margin, the US Jobless Claims improving further and the inflation expectations in the UMich survey surprising to the upside.
Overall, we ended the week basically flat on the US dollar as the aggressive dovish expectations on the Fed got trimmed a bit. Nevertheless, given the overreaction from the Fed members to the last soft NFP, a September cut looks unavoidable now and only a hot NFP report in September might get us to a 50% probability (although it would certainly diminish expectations for rate cuts after the September one).
The focus has now switched to Fed Chair Powell’s speech at the Jackson Hole Symposium on Friday. Traders will be eager to see if he changes his stance as well. Most likely though, he won’t pre-commit to anything and just reiterate that they will decide based on the totality of the data.
On the NZD side, nothing has changed fundamentally, and we haven’t got any notable data other than the labour market report which came mostly in line with expectations and didn’t change much for the RBNZ pricing. The market still expects around 41 bps of easing by year-end with 94% probability of a cut tomorrow. Tomorrow’s cut would bring interest rates to the central bank’s estimated 3% neutral rate.
NZDUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that the NZDUSD pair pulled back just before hitting the major trendline around the 0.60 handle. If we get another rally, we can expect the sellers to step in around the trendline with a defined risk above it to position for a drop into the key 0.5850 support zone. The buyers, on the other hand, will look for a break above the trendline to increase the bullish bets into the 0.6050 resistance next.
NZDUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price recently broke below the upward trendline that was defining the bullish momentum. This might be a signal for a deeper pullback into the 0.5850 support zone. If the price break below the recent low at 0.5906, we can expect the sellers to pile in to extend the drop into the support zone. The buyers, on the other hand, will have a much better risk to reward setup around the support zone to position for a rally into the 0.6050 resistance.
NZDUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we could be forming a tight range between the 0.5944 and the 0.5906 level. Given that we have the RBNZ tomorrow, these levels might not mean much. If we get a hawkish decision, we can expect the buyers to pile in on a break above the 0.5944 level to target the major trendline. Conversely, a dovish decision should trigger a downside breakout and a move into the 0.5850 support. The red line define the average daily range for today.
Upcoming Catalysts
Tomorrowwe have the RBNZ rate decision, Fed’s Waller speaking and the FOMC meeting minutes. On Thursday, we get the US Flash PMIs as well as the US Jobless Claims figures. Finally, on Friday, we conclude the week with Fed Chair Powell speech at the Jackson Hole Symposium.
