NZDUSD D1 09 04 2020 1403

NZD/USD initiates a series of lower highs and lows after taking out the January high (0.6733) as RBNZ Governor Adrian Orr strikes a dovish outlook for monetary policy, with the central bank head providing an overview of the “additional tools that we are considering using as a package in the near future.”

Governor Orr states that “the instruments include various forms of negative wholesale interest rates, further quantitative easing using large scale purchases of domestic and foreign assets, direct lending to banks, and forward guidance,” and it seems as though the Monetary Policy Committee (MPC) will continue to deploy more non-standard tools after expanding the Large Scale Asset Purchase (LSAP) program to NZ$ 100B in August asthe central bank keeps the door open to implement a negative interest rate policy (NIRP).

It remains to be seen if the RBNZ will take additional steps to support the New Zealand economy as Governor Orr insists that “it was better to risk doing too much too soon, than too little, too late,” but the MPC may stick to the status quo at the next meeting on September 22 as the central bank head pledges to outline our future monetary policy strategies and tools, and when we might use them.

In turn, the RBNZ may gradually alter the forward guidance over the coming months, and speculation for additional monetary support is likely to produce headwinds for the New Zealand Dollar as the central bank ventures into uncharted territory.

Until then, current market trends may keep NZD/USD afloat as the Federal Reserve appears to be in no rush to scale back its emergency measures, and the crowding behavior in the US Dollar looks poised to persist as retail traders have been net-short the pair since mid-June.
Keep in mind, NZD/USD cleared the February high (0.6503) in June as the Relative Strength Index (RSI) broke above 70 for the first time in 2020, with the exchange rate taking out the January high (0.6733) in September following the close above the Fibonacci overlap around 0.6710 (61.8% expansion) to 0.6740 (23.6% expansion).
However, NZD/USD initiates a series of lower highs and lows from the fresh yearly high (0.6789) as the RSI fails to reflect the extreme reading seen in June even though the indicator breaks out of the downward trends carried over from earlier this year.
Lack of momentum to break/close above the 0.6790 (50% expansion) region has pushed NZD/USD back below the overlap around 0.6710 (61.8% expansion) to 0.6740 (23.6% expansion), with the exchange rate coming up against the 0.6680 (23.6% expansion) area as the RSI flips ahead of overbought territory.
A further decline in NZD/USD may bring the 0.6600 (38.2% expansion) to 0.6630 (78.6% expansion) region back on the radar, with a break/close below 0.6550 (50% expansion) opening up the 0.6490 (50% expansion) to 0.6520 (100% expansion) area, which largely lines up with the August low (0.6489).

 

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XAUUSD D1 09 03 2020 2031

Gold prices have largely digested that recent range with price action narrowing through the second-half of August.
Of interest in that theme was a big zone of support running from 1900-1920 that’s held multiple support tests around the lows. This morning saw yet another support test in that zone, and so far buyers have been able to hold the lows, getting an assist from a bullish trendline projection that can be found by connecting August 11th and 26th swing-lows.

This is the first such release since Chair Powell’s comments at Jackson Hole, when the head of the FOMC placed even more emphasis on the employment side of the bank’s dual mandate. Complicating matters around tomorrow’s employment numbers is the potential for noise in the data, as a number of temporary hires to complete this year’s census is likely going to show in the numbers; further obscuring actual impact to the economy based on shifts in the employment market over the past month.

GBPJPY D1 08 28 2020 2137

GBP/JPY moving sideways within the context of an uptrend since late June suggests another push higher could come soon. A firm break above the June swing-high will likely have the area around 140.82 in play, a spot that acted as resistance and support from October to February.

A subsequent break beyond the above mentioned levels could open up room to trade to the February 2018 trend-line and a pair of peaks (~144.60), created before the coronavirus rout. All-in-all, this could mean another 500 pips is in store in the not-too-distant future.

To derail the current outlook, a breakdown is needed out of the neatly forming channel since late June (we’ll call it <~137.75). In the event this happens, the 200-day at 137.40 could come into play quickly, along with a parallel from the March low, currently around the 136.75 mark. This would be a big spot of support in the bigger picture.

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AUD USD 20200902 11.15

The Australian Dollar sharply lower after second quarter GDP figures confirmed the local economy’s first recession in 29 years.

The 7% contraction clearly disappointed market participants and could call the Reserve Bank of Australia into action, given the central bank forecast a quarterly decline of 6.7% in its August Statement on Monetary Policy.

Moreover, Australia’s early emergence from lockdown restrictions didn’t seem to have the expected impact on economic growth, with household spending falling 12.1% and the household savings ratio climbing to 19.8%.

This may be indicative of a permanent shift in consumer activity that could continue to hamper the local economy’s recovery and may result in a notable discounting of the Australian Dollar in the near term.

Attention now turns to upcoming retail sales data for August and escalating trade tensions with China, which may dictate the medium-term outlook for AUD.

US Tech 100 20200827 22.13 1

In turn, lower interest rates may also remain while inflation rises. The intended goal is to allow unemployment to taper off while inflation rises instead of immediately moving to raise interest rates in a budding economy just because one measure has become overheated. To be sure, prolonged periods of lower interest rates may continue to provide an encouraging backdrop for the US equity market, but some analysts have begun to question whether this atmosphere will have negative effects down the line.

The Nasdaq 100 has climbed nearly 35% in the year-to-date despite a global pandemic and a looming US Presidential election combining to create immense uncertainty. With the Fed firmly behind them, many stocks have pressed ever higher and some investors have warned this growth is artificially sourced from the central bank.

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