Daily Commentary | 12/02/2019
RBNZ’s interest rate decision
Tomorrow during the Asian session (01:00, GMT), RBNZ is to release its interest rate decision and is expected to remain on hold at +1.75%. Currently NZD OIS imply a probability of 91.03% for the bank to remain on hold as mentioned. Given the fact that RBNZ has a dual mandate (over inflation and unemployment), there seems to be little to be optimistic about as unemployment has recently risen (Q4: 4.3%) and inflation remained below the bank’s median target of inflation. Also the growing global trading uncertainty, coupled with a slowdown in Chinese growth could push RBNZ to join the dovish chorus of other central banks. Analysts point out that the bank could revise downwards its forecasts in the monetary statement which is due out at the same time. Should dovish elements prevail in the accompanying statement or the following press conference we could see the Kiwi weakening. NZD/USD maintained a rather sideways motion yesterday testing the 0.6725 (S1) support line. If we see a more dovish tone prevailing in the RBNZ’s interest rate decision, we could see the pair trading in a bearish market over the next two sessions as the Kiwi side of the pair could weaken. Should the bears dictate the pair’s direction, we could see it breaking the 0.6725 (S1) support line and aim for the 0.6675 (S2) support level. Should the bulls take over, we could see the pair aiming if not breaking the 0.6780 (R1) resistance line.
Pound weakens on UK’s slowing economy and Brexit uncertainty
The pound weakened against the USD yesterday, as financial data showed an accelerating slowdown of economic growth in the UK for the last quarter of 2018. Analysts are pointing towards the monthly data showing a contraction of the UK economy and also mention that such numbers matched with Brexit uncertainty paint a rather gloomy picture of UK future. On the political front, Theresa May has rejected the idea of the UK remaining under EU customs rule and fears are growing that Theresa May could be risking a hard Brexit. The British PM is to address the UK parliament today and could be asking for more time to renegotiate with the EU. We maintain the view that without an end to uncertainty, the pound is likely to continue to trade in a bearish market. Cable dropped yesterday aiming for the 1.2830 (S1) support line as it ultimately obeyed the downward trend line’s command. We maintain a bearish sentiment for the pair as the downward trendline continues to dictate the pair’s direction. It should be noted that in the 4 hour chart the pair’s RSI is near the reading of 30, implying a rather overcrowded short position. If the pair remains under the selling interest of the market, we could see the pair breaking the 1.2830 (S1) support line and aim for the 1.2710 (S2) support level. On the flip side, if the market favors the pair’s long positions, we could see cable breaking the prementioned downward trendline and aiming if not breaking the 1.2960 (R1) resistance level.
Today’s other economic highlights
In today’s American session we get form the US the Jolts Job Openings number for December and the US API weekly crude oil inventories figure. As for speakers, BoE governor Mark Carney and Fed Chair Jerome Powell speak. Also please note that ECB president Mario Draghi will be joining the Eurogroup meeting today and the OPEC monthly report is due out.
• Support: 0.6725 (S1), 0.6675 (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)