Daily Commentary | 07/02/2019
BoE’s interest rate decision in focus
BoE will be announcing its interest rate decision (12:00, GMT) and is widely expected to remain on hold at +0.75%, GBP OIS is implying a probability of 99.60% for such a scenario currently. We could see the market’s attention turning to the accompanying statement as well as the quarterly inflation report, as it’s a “Super Thursday” and both are to be released at the same time. On the one hand we could see Brexit uncertainty along with a decelerating inflation rate and weak economic activity (PMIs, retail sales) advising caution, while on the other though a tight UK labour market provides optimism. Should the dovish comments prevail we could see the GBP weakening. Also any possible downward revisions of the inflation rate and the GDP growth rate in the quarterly inflation report could add to the bearish sentiment for the pound. Cable tested the 1.2960 (R1) resistance line yesterday, yet failed to break it and remained clearly below it. We maintain a bearish outlook for the pair and for opinion to change we would require the pair’s price action to clearly break the downward trendline incepted since the 31st of January. Technically it should also be noted that RSI indicator in the 4 hour chart is below the reading of 30, implying a possibly overcrowded short position. Should the bears dictate the pair’s direction we could see it breaking the 1.2830 (S1) support line and aim for lower grounds. On the flip side, should the bulls take over, we could see cable breaking the 1.2960 (R1) resistance line, the prementioned downward trendline and aim for the 1.3070 (R2) resistance level.
NZD weakens against USD, on employment data
The kiwi weakened against the USD yesterday, as New Zealand’s employment data for Q4 were worse than expected. The unemployment rate rose to 4.3%, as the job growth rate dropped to 0.1% qoq and the labour cost index ticked up to +2.0% yoy. Given that the RBNZ has a dual mandate for inflation and employment and was between a rate cut and a hike for its next move, we could see chances for the next move tilting to the downside. Analysts point out that growth momentum has started to fade and the employment data released could add to a more cautious tone by the RBNZ. Overall, the main commodity currencies (NZD, AUD, CAD) were under pressure yesterday and we could see the bearish momentum for the Kiwi lingering on for a few days. NZD/USD tumbled yesterday during the late American session and today’s Asian session, as it broke consecutively the 0.6825 (R2) and the 0.6780 (R1) support lines, now turned to resistance. We see the case for the pair to continue to trade in a bearish market yet some correction could take place after the steep drop. Please be advised that the RSI indicator is below the reading of 30 in the pair’s 4 hour chart, implying that the pair’s short position could be overcrowded and underscoring the possibility of a correction. Should the pair continue to be under the selling interest of the market, we could see the pair breaking the 0.6725(S1) support line and aim for the 0.6675 (S2) support level. Should the pair find extensive buying orders along its path, we could see it breaking the 0.6780 (R1) resistance line and aim for the 0.6825 (R2) resistance level.
Today’s other economic highlights
In today’s European session, we get Germany’s industrial output growth rate for December, UK’s Halifax House Prices for January and just before the American session from the Czech Republic we get CNB’s interest rate decision. In the American session, we get the US initial jobless claims figure. As for speakers, please note that ECB’s Yves Mersch, Dallas Fed President Robert Kaplan and Fed’s Richard Clarida will be speaking today.
• Support: 0.6725 (S1), 0.6625 (S2), 0.6630 (S3)
•Resistance: 0.6780 (R1), 0.6825 (R2), 0.6860 (R3)
• Support: 1.2830 (S1), 1.2710 (S2), 1.2610 (S3)
•Resistance: 1.2960 (R1), 1.3070 (R2), 1.3175 (R3)