NZD Resilient Ahead of 3Q CPI Report- Outlook Mired by Dovish RBNZ

Talking Points:

Outperforms Ahead of New Zealand 3Q Inflation Report; Outlook Mired by Dovish RBNZ.

to Stage Larger Recovery on Strong U.K. Consumer Price Index (CPI).

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  • The outperforms its major counterparts, with NZD/USD extending the rebound from 0.7040 (50% retracement), while the Relative Strength Index (RSI) appears to the threatening the bearish formation carried over from the previous month after failing to push into oversold territory; topside break in the oscillator may foreshadow a further advance in the exchange rate.
  • However, New Zealand’s 3Q Consumer Price Index (CPI) may dampen the appeal of the local currency and fuel bets for an imminent rate-cut as the headline reading for inflation is expected to slow to an annualized 0.1% from 0.3% during the three-months through September; may see the Reserve Bank of New Zealand (RBNZ) may come under pressure to further embark on its easing cycle at its last 2016 policy meeting on November 10 especially as central bank officials warn ‘current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range.’
  • Will keep a close eye on former support around 0.7200 (38.2% retracement & expansion) for new resistance, with the next topside region of interest coming in around 0.7240 (61.8% expansion) followed by 0.7280 (50% expansion).

1.2205

1.2127

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Chart – Created Using

  • GBP/USD remains stuck in a narrow range, with the pair at risk for a larger recovery amid the slew of failed attempts to close below 1.2100 (61.8% expansion); will keep a close eye on the RSI, with a move out of oversold territory (above 30) accompanied by a break of the bearish formation opening up the first topside target around 1.2360 (50% retracement) followed by 1.2460 (61.8% expansion).
  • A marked pickup in the headline as well as core U.K. Consumer Price Index (CPI) may curb the bearish sentiment surrounding the as a growing number of Bank of England (BoE) officials adopt a more hawkish tone and see a greater threat of overshooting the 2% target for inflation; may see Governor and Co. stick to the current policy at the next interest rate decision on November 3 as Deputy Governor warns the next quarterly inflation due out on November 3 will reflect the sharp decline in the exchange rate.
  • Broader outlook for GBP/USD remains tilted to the downside, with the key area of interest coming in around 1.2920 (100% expansion) to 1.2950 (23.6% expansion).
  • The shows the retail crowd remains net-long GBP/USD since September 13 despite the British Pound ‘flash crash,’ while traders are still net-long NZD/USD following the flip in position on October 4.
  • GBP/USD SSI currently sits at +2.70 as 73% of traders are long, with long positions 124% higher from the previous week even as open interest stands 5.4% below the monthly average.
  • NZD/USD SSI currently sits at +1.18 as 54% of traders are long, with short positions 16.4% higher from the previous week, while open interest stands 5.4% above the monthly average.
  • GBP/USD SSI may continue to serve as a contrarian indicator as the retail crowd remains stuck on the wrong side of the market, with the broader outlook for the exchange rate tilted to the downside.

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— Written by David Song, Currency Analyst

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

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