Last week we heard from several central bank speakers who emphasized the need of taking a data-dependent approach before considering further policy tightening as they don’t want to overdo it. In fact, while the majority of the FOMC members expect two more rate hikes this year, they consistently highlight that these decisions hinge on the data. Last week's data trends leant more towards a rate hike, supported by the strong housing market data, the stable US Jobless Claims, and the beat in the US Services PMI.
The upcoming NFP and CPI reports will have a crucial role in shaping future actions but if we continue to see good data, it is likely that the Fed will indeed proceed with two more rate hikes instead of just one that the market currently expects. Conversely, The RBNZ remains on hold for now after they hiked rates to 5.5% and the New Zealand economy slipped into a technical recession. The central bank wants to see how things develop on the data front before considering additional tightening.
NZDUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that NZDUSD has bounced recently on a strong support zone near the 0.6115 level where we have the confluence of the previous swing high level, the red 21 moving average and the 61.8% Fibonacci retracement level. That’s where the buyers entered with a defined risk below the zone targeting the 0.63 handle.
NZDUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price is trading within a falling channel that can turn into a bullish flag once the price breaks above the upper bound of the channel. The target in that case would be the equal extension of the first leg higher, also called the “flagpole”, which comes right at the 0.63 resistance. The sellers, on the other hand, will need a break below the 61.8% Fibonacci retracement level to invalidate the bullish setup and target the 0.5987 low.
NZDUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price has rejected the upper bound of the channel and it’s now falling into a previous resistance that now may turn support. We have some good confluence here with the trendline, the 50 and 61.8% Fibonacci retracement levels and the red 21 moving average. This is where the buyers should enter the market with a defined risk below the trendline and aim for a breakout of the bullish flag to ride the rally into the 0.63 resistance. The sellers, on the other hand, will want to see the price breaking below the trendline before piling in and extend the eventual fall into the 0.6115 support.
The economic data for this week is relatively light, featuring only the US Jobless Claims on Thursday and the US PCE on Friday. However, despite the limited data releases, we will still hear from many central bank members throughout the week.
See also the video below: