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NZDUSD stalled immediately around 0.6230 following the clear break above the descending trendline that kept the bulls in control over the past month.

The pair has crawled above its 20- and 200-day simple moving averages (SMAs) too, raising optimism for a bullish trend reversal. That said, the negative trajectory from February’s eight-month high of 0.6536 is still in place as the price has yet to print a new higher high above the 0.6300 barrier. The 50-day SMA and the falling constraining line drawn from December 2020 reside in the same area, cementing that ceiling.

The technical signals are reflecting some caution as well. The RSI continues to hover below its 50 neutral mark, while the MACD remains within the negative zone despite both pivoting higher.

Hence, traders may wait for an extension above 0.6300, which overlaps with the 23.6% Fibonacci retracement of the 0.5510-0.6536 uptrend, before they target the next resistance area of 0.6365. A successful move higher could add more fuel to the rally, lifting the price towards the 0.6465 barricade and then up to the 0.6536-0.6550 bar.

If downside pressures persevere below 0.6190 and under the 20-day SMA, the door will open for the 200-day SMA and the 38.2% Fibonacci of 0.6150. Another failure here would shift the spotlight to the previous low of 0.6083, a break of which could initiate a quick drop to the 50% Fibonacci of 0.6023 and the 0.6000 round-level.

In brief, NZDUSD has not achieved a bullish bias yet, although it has almost recouped last week’s losses. A decisive close above 0.6300 could be a prerequisite to boosting buying sentiment.

Equities bounce back as traders trim their bets of aggressive tightening by central banks. The FTSE 100 has tumbled to the base of a breakout rally in early January near 7490. This is a critical level to maintain the upward trajectory in the medium-term after the index gave up two months of gains. An oversold RSI on the daily chart may attract some bargain hunters in this demand zone and short-covering would drive the bid up. 7750 is the first obstacle to lift and only a close back above 7900 would turn sentiment around.

Gold keeps the high ground as the US dollar remains under pressure across the board. On the daily chart, solid bullish candles have sent the price to the supply area around 1915 at the start of the February sell-off. As the RSI comes off the overbought zone the bulls could use some breathing room before they would push even higher. 1874 is the immediate support to gauge the strength of follow-up bids. Further down, 1845 near the moving averages sits at the origin of the bullish breakout, making it an important support.

The US dollar struggles as data show a slowdown in headline inflation in February. Cable’s recovery above 1.2050 then the double top at 1.2140 has put the pair back on track after a three-month long consolidation. 1.2050 has turned into a support to keep the latest momentum going while 1.1900 further down is where the bulls would draw a line in the sand. A close above the mid-February spike of 1.2220 may extend gains to this year’s high at 1.2430, which would be a step closer to a bullish continuation in the medium-term.

Markets

Volatility on especially rate markets remained high yesterday. Markets in the end erased part of the fallout of the SVB and Signature Bank collapse & government deposit bailout. The jury is still out on whether these two regional bank failures are “isolated” events or whether larger systemic risks to financial stability loom. It puts the Fed in difficult position next week when it gathers following two months of hot labour market data and stubbornly high inflation readings. Yesterday’s core CPI printed marginally stronger at 0.5% M/M and 5.5% Y/Y with core services inflation showing no signs of slowing. The data argue in favour of accelerating tightening to 50 bps, but the regional banking crisis pleads for sticking to January’s 25 bps hike. The latter is the more likely and discounted scenario. Providing guidance for the rest of the year via the Summary of Economic Projections will be a tough call for Fed governors given the recent hiccup. Ceteris paribus, we think the Fed will use its regulatory macroprudential framework to map financial stability risks (expected May 1; ahead of May 3 policy meeting) and keep its eyes on the price(s). US money markets reverted to discounting a too dovish policy path going forward (<5% policy rate peak with 50 bps rate cut discounted by end 2023) in this scenario. US yields yesterday closed the session 9.2 bps (30-yr) to 27.4 bps (2-yr) higher with intraday moves even larger. Compared to last Wednesday’s close, US yields are still 30 bps lower at the 10-yr tenor and 80 bps at the 2-yr. German yields added 13.4 bps (30-yr) to 20.2 bps (2-yr) yesterday. A similar weekly comparison shows them being 23 bps lower on the 10-yr and 45 bps at the 2-yr. We expect the ECB to stick to its guidance of a 50 bps rate hike tomorrow (currently not completely discounted) while holding back on strong guidance for the May policy meeting. As for the US, European money markets are currently positioned way too soft with a policy rate peak of 3.50% by autumn. US equity markets rebounded 1% to (Dow) to 2% (Nasdaq) but came off intraday highs after the collision between a Russian fighter jet and a US drone. FX markets stomached the whole banking crisis best as again witnessed in yesterday’s rangebound EUR/USD-session between roughly 1.07 and 1.0750. There are more signs of cautious relief this morning with the front end of the US yield curve underperforming. Asian stock markets gain around 1.5%. Today’s eco calendar contains US PPI data, retail sales and Empire Manufacturing Survey. Markets are unlikely to be tempted to react on them. They’ll first want more evidence that the regional US banking issues don’t ask for another victim. Yesterday’s market action in this respect was constructive. UK markets will look to Chancellor Hunt’s annual budget release. EUR/GBP yesterday tried to find a way below 0.88 on strong labour market data, but failed to do so.

News and views

New Zealand’s annual current account deficit amounted to NZD 33,8bn in 2022. The current account deficit ratio jumped from 6.0% of GDP in 2021 to 8.9%, the highest deficit ratio since start of the series in 1988. The rise in the deficit was mainly due to a NZD 10bn widening of the goods and services balance and a NZD 2.7% rise of the income deficit. Imports of goods and services rose NZD 23bn (25.8%). Exports of goods and services rose only NZD 13,1bn (16.8%). “Since New Zealand’s borders opened more New Zealanders have been travelling overseas. The spending on both air transport and travel contributed to the rise in services imports for the year to December 2022,” institutional sectors senior manager Paul Pascoe said. In a comment on Bloomberg, S&P global was quoted that the New Zealand Credit rating could come under pressure as the deficit was much wider than the agency expected. S&P currently has foreign currency rating of AA+ and a AAA local currency rating for the country. The kiwi dollar eased slightly this morning to NZD/USD 0.622

A series of February China eco data published this morning showed a mixed picture on the pace of the recovery after the country abruptly changed its Covid-19 approach end last year. Retail sales in the first two months of the year were 3.5% higher compared to the same month last year (was minus 1.8% in Dec), broadly as expected. However, industrial production gaining 2.6% Y/Y lagged expectations. Fixed assets investment accelerated to 5.5% Y/Y. Residential property investment still printed negative (-5.7%) compared to the same month last year. The rise in fixed asset investment suggests that growth might remain dependent on persistent government support. The yuan this morning weakened slightly against a dollar that was marginally stronger overnight (USD/CNY 6.8875).

Daily Pivots: (S1) 162.01; (P) 163.04; (R1) 164.22; More...

Intraday bias in GBP/JPY remains neutral first. On the upside, break of 165.99 resistance will resume the rally from 155.33. That would also revive the case that correction from 172.11 has completed. Further rise should be seen back to retest 172.11 high. However, below 160.02 will bring deeper fall to 156.70 support instead.

In the bigger picture, as long as 38.2% retracement of 123.94 (2020 low) to 172.11 (2022 high) at 153.70 holds, medium term bullishness is retained. That is, larger up trend from 123.94 (2020 low) is still in progress. Break of 172.11 high to resume such up trend is expected at a later stage.

Daily Pivots: (S1) 142.92; (P) 143.67; (R1) 144.79; More....

Intraday bias in EUR/JPY stays neutral for the moment. On the upside, firm break of 145.55 resistance will resume the rise from 137.37. That would also revive the case that correction from 148.38 has completed. Bias will be turned back to the upside for retesting 148.38 high. On the downside, however, break of 141.36 will bring another decline to 139.54 support.

In the bigger picture, as long as 55 week EMA (now at 139.54) holds, larger up trend from 114.42 (2020 low) is still in progress for 149.76 long term resistance. However, firm break of 55 week EMA will bring deeper fall to 38.2% retracement of 114.42 to 148.38 at 135.40. Sustained break there will raise the chance of trend reversal, and target 61.8% retracement at 127.39.

Daily Pivots: (S1) 0.8792; (P) 0.8814; (R1) 0.8850; More...

Intraday bias in EUR/GBP is turned neutral first as it recovered after dipping to 0.8776. Outlook is unchanged that corrective pattern from 0.8977 might extend further. Below 0.8776 will target 0.8753 support and below. But strong support is expected from 0.8720 to contain downside and bring rebound. On the upside, above 0.8862 minor resistance will turn bias back to the upside for 0.8924 resistance and above.

In the bigger picture, outlook is rather mixed for now, except that price actions from 0.9267 (2022 high) are part of the long term range pattern from 0.9499 (2020 high). With 0.8720 support intact, rise from 0.8545 is in favor to continue through 0.8977. However, firm break of 0.8720 will argue that such rebound has completed, and open up deeper fall through this support level.

Daily Pivots: (S1) 1.6008; (P) 1.6073; (R1) 1.6126; More...

Intraday bias in EUR/AUD remains neutral for consolidation below 1.6200. Downside of retreat should be contained by 1.5826 support to bring another rally. Break of 1.6200 will resume the larger rise from 1.4281 to 61.8% projection of 1.4281 to 1.5976 from 1.5254 at 1.6302 next.

In the bigger picture, the strong support from 55 week EMA (now at 1.5396) is raising the chance of bullish trend reversal. Focus is now on 1.6434 cluster resistance (38.2% retracement of 1.9799 to 1.4281 at 1.6389). Sustained break there should confirm that whole down trend from 1.9799 (2020 high) has completed. Further rally should then be seen to 61.8% retracement at 1.7691. However, rejection by this cluster resistance will make medium term outlook neutral at best.

Daily Pivots: (S1) 0.9766; (P) 0.9794; (R1) 0.9841; More...

Intraday bias in EUR/CHF remains neutral for the moment and some more consolidations could be seen above 0.9711. Upside of recovery should be limited by 0.9844 support turned resistance to bring another decline. As noted before, rebound 0.9407 could have completed at 1.0095 already. Below 0.9711 will target 61.8% retracement of 0.9407 to 1.0095 at 0.9670. Sustained break there will bring deeper fall to retest 0.9407 low. Overall, risk will stay on the downside as long as 55 day EMA (now at 0.9906) holds.

In the bigger picture, rejection by 55 week EMA (now at 1.0011) and 38.2% retracement of 1.1149 to 0.9407 at 1.0072 suggests that medium term outlook is staying bearish. That is, down trend from 1.2004 is not completed yet and is in favor to resume through 0.9407 at a later stage. For now, this will be the favored case as long as 1.0095 resistance holds.