On the daily chart below, we can see that May was a great month for the USD as the strong economic data made the market to reprice interest rates expectations on the more hawkish side. We even got a breakout of the March low recently, but the sellers couldn’t sustain the momentum as they started to get big headwinds. In fact, NZDUSD rallied in the past two days as the market started to unwind hawkish bets due to some Fed officials talking about a pause in June to wait for more data and decide in July.
Moreover, yesterday’s soft data in the ISM Manufacturing PMI and Unit Labour Cost reports supported the idea of a pause in June. If the next set of data doesn’t surprise to the upside, then we should see NZDUSD rallying all the way towards the 0.6181 level where we can find confluence from the trendline, the 61.8% Fibonacci retracement level and the red 21 moving average.
NZDUSD Technical Analysis
On the 4 hour chart below, we can see that we had already some signals of a weakening bearish momentum from the price divergence with the MACD. Sure enough, we got a pullback, that may even become a reversal if the data starts to disappoint.
The buyers’ target is of course the 0.6181 resistance and the cross to the upside of the moving averages is currently supporting the idea of another wave of buying pressure to come. If NZDUSD reaches the 0.6181 resistance, we can expect the sellers leaning on that level with a defined risk just above the resistance to target a break below the 0.5985 low.
On the 1 hour chart below, we can see that we have a bullish structure at the moment with the last higher low standing at the 0.6058 level. This zone between the 0.6058 and 0.6084 coupled with the red 21 moving average will be the buying area for the buyers with a stop just below it. The sellers, on the other hand, will want to see the price to break through that zone to pile in and extend the selloff into the 0.5985 low first and the 0.5820 level next.
Today, the attention will be on the NFP report, and there are several potential outcomes to consider:
- If the data surpasses expectations, accompanied by higher-than-anticipated average hourly earnings, it is likely to increase the likelihood of a rate hike in June and potentially even signal the possibility of a rate hike in July. Such a scenario could raise concerns in the market regarding a potential escalation of wages and prices.
- On the other hand, if the data is positive but falls short of expectations in terms of average hourly earnings, it is expected to exert further downward pressure on the USD, as it would not significantly affect rate expectations. In this case, market participants will eagerly await the forthcoming CPI report, scheduled for next week.
- Should the data disappoint across all aspects, it will be regarded as negative news and could potentially prompt risk aversion in the markets, leading to an increased demand for the USD. However, given recent remarks made by Federal Reserve officials, we might witness a weakening of the USD due to reduced expectations surrounding future interest rate hikes.
