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• NZDUSD finds support at 200-day SMA
• Prices have been heading lower over the last month
• Stochastics and RSI keep downside move

NZDUSD is posting notable losses after the RBNZ’s policy decision to leave interest rates unchanged at 5.5%. The pair is pausing its decline near the 200-day simple moving average (SMA) at 0.6070 and the short-term ascending trend line.

Technically, the stochastic oscillator posted a bearish crossover within its %K and %D lines near the overbought region, while the RSI is heading south below the neutral threshold of 50. Additionally, the 20- and 50-day SMAs are moving lower, with the potential for a downside crossover.

Immediate support could be found near the 0.6050 level before tumbling to the 0.5980 barrier and switching the outlook to a more bearish one.

On the other hand, traders should look to the previous peak at 0.6150 as the first resistance after a successful bounce off the uptrend line, before resting near the 0.6220 obstacle again. A penetration of this level would add optimism for more buying interest until 0.6280, registered in January.

To summarize, NZDUSD has been in a bearish wave since it topped at 0.6220 in the very short term, but over the last three months, it has posted higher highs and higher lows.

• USDJPY edges higher after the pullback from 38-year high pauses
• The risk of a Japanese intervention is active at current levels
• Momentum indicators provide overbought signals

USDJPY experienced a minor setback from its 38-year high of 161.95, which quickly came to a halt at the April peak of 160.20. The pair is on track to revisit its recent multi-year high, but traders should be cautious as the market has approached levels that the Japanese side might be willing to defend.

Should bullish pressures persist, the price could initially challenge the 38-year high of 161.95, registered on July 3. Further advances could then cease at 163.55, which is the 200.0% Fibonacci extension of the 151.90-140.24 downleg. A break above that territory could pave the way for the 165.00 psychological mark.

Alternatively, if the pair comes under selling pressure, immediate support could be found at the April peak of 160.20, which also provided downside protection in July. Failing to halt there, the price could descend towards the 161.8% Fibo of 159.10. Even lower, the 138.2% Fibo of 156.35 could prove to be a tough barricade for the bears to overcome.

In brief, despite some near-term weakness in the aftermath of a fresh 38-year peak, USDJPY has been inching back higher. Therefore, we could see some heightened volatility moving forward as the price is trading near levels that could trigger another intervention by the Japanese authorities.

The Reserve Bank of New Zealand (RBNZ) kept the interest rate unchanged at 5.5% on Wednesday.

The decision to maintain the interest rate was anticipated. However, market participants noted a shift in the tone of the RBNZ's official statements. In May, the bank indicated that the tight policy would continue as long as necessary, but now it is open to easing the restrictive monetary policy if inflation slows down.

As a result, market participants are now considering the possibility of a nearer-term rate cut, which led to a decline in the New Zealand dollar relative to other currencies.

Specifically, against the US dollar, the "kiwi" fell by approximately 0.75%.

Will the decline continue as the situation develops?

According to the technical analysis of the NZD/USD chart today:

→ In 2024, the exchange rate dynamics are significantly influenced by interactions with the levels: 0.62150 (resistance), 0.58850 (support), and 0.60500 (which acts as a pivot between support and resistance, as indicated by the black arrows).

→ Bullish sentiment prevailed in the market since May, resulting in the formation of an upward blue channel on the chart. However, the bulls were unable to break through the 0.62150 resistance, and now the median of the blue channel serves as resistance (indicated by the blue arrow).

Considering the prospect of further NZD/USD price decline, it is important to note obstacles in the path of the bears in the form of supports: → from the lower boundary of the blue channel; → from the 0.60500 level, around which the price has fluctuated since the beginning of the year; → from the psychological level of 0.6.

Therefore, technically, it is possible that the downward momentum created today due to the RBNZ decision may weaken when attempting to break through these supports.

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Markets

Fed Chair Powell before Congress yesterday reiterated that the US economy is coming into better balance. It made considerable progress toward the Fed’s 2% target. The labour market has cooled but remains strong. Even so, data still have to provide the MPC greater confidence that inflation is sustainably moving to target. Recent readings showed some progress but more good data are still needed. However, from now inflation is not the only risk the Fed is facing. As the labour market is cooling, reducing policy restrain too late or too little also can unduly weaken activity and employment. Even so, the Fed Chair explicitly said that he didn’t intend to give any rate timing signals as the Fed stays in a data-dependent mode. This absence of any guidance on timing also prevented any meaningful market reaction. US yields hardly changed (2-y easing 0.2 bps while the 30-y added 2.3 bps). Even as there was little economic news on this side of the Atlantic, German yields added between 1.8 bps (2-y) and 4.2 bps (30-y). Intra-EMU spreads (vs Germany) after a mild easing on Monday, yesterday again widened (France +4 bps) as markets realized that any fiscal improvement in France, but also any many other EMU countries, will be a difficult political process. Risk premia are here to stay. The EuroStoxx 50 declined 1.33%. In the US, the S&P 500 (+ 0.07%) and the Nasdaq (+0.14%) held at record levels. Changes in the major USD cross rates were limited, with the dollar gaining on points (DXY close 105.13, EUR/USD 1.0813, USD/JPY 161.33).

This morning, Asian equities show no clear trend and mostly are little changed as are US Treasuries. EUR/USD gains marginally (1.0819). The yen weakens further beyond USD/JPY 161.(5). Today, there are no important data on both sides of the Atlantic. The market focus will mainly go to tomorrow’s US June CPI inflation. A mild 0.1% M/M & 3.1% Y/Y (headline) and 0.2%/3.4% (core) is expected. After Powell not pre-committing and with markets already discounting 2 cuts this year, a sub-consensus figure is probably needed for ST US yields to decline further (US 2-y support at 4.55%/4.59%). In this context, it also won’t be that easy for EUR/USD to break to 1.0916 resistance.

News & Views

Chinese June inflation came in at the low end of expectations again. This happening despite favorable 2023 base effects suggests ongoing (very) weak consumer demand. Prices rose 0.2% y/y (-0.2% m/m), only half of the 0.4% expected and a further deceleration from the 0.3% in May. Consumer goods deflated by 0.1% y/y while services CPI eased to 0.7% from 0.8%. The core gauge (excluding food & energy) pared May’s 0.6% (-0.1% m/m). There seems to be little improvement on the way for CPI to pick up anytime soon with factory-gate inflation (PPI) still venturing in negative territory. The -0.8% y/y outcome was in line with expectations, though, and also meant a further bottoming out from the -1.4% in May and the trough of -5.4% in June 2023. The Chinese yuan set a new 9-month low in the wake of the release. USD/CNY trades at 7.275, slowly but steadily nearing the September 2023 16-yr low of 7.35.

The Reserve Bank of New Zealand kept the policy rate unchanged at 5.5% this morning but dialed back its hawkish tone from the May meeting. Back then, persistent domestic inflation (amongst others) made policymakers discuss a rate increase before eventually deciding to keep rates high for longer and signaling no cuts before 2025Q3. There was no mention whatsoever of a potential hike in the statement today. Instead, the RBNZ expects headline inflation to return to the 1-3% target range in the second half of this year while strong domestically generated price pressures will ease. This follows a fall in capacity pressures, which the recently weaker higher frequency economic indicators suggest is coming. While agreeing that monetary policy needs to be restrictive still, the statement in another dovish twist added that “The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures.” New Zealand swap yields tank up to almost 20 bps at the front end of the curve. The RBNZ pivot triggered a strong shift in markets’ rate cut expectations. They now fully price in a first move in October (vs November yesterday) with a 60% chance discounted for a start at the next meeting in August (vs October). The kiwi dollar loses against all G10 peers this morning, including the US dollar, though losses could have been bigger. NZD/USD slips to 0.609.

Graphs

GE 10y yield

The ECB cut its key policy rates by 25 bps at the June policy meeting. A more bumpy inflation path in H2 2024, the EMU economy gradually regaining traction and the Fed’s higher for longer US strategy make follow-up moves difficult. Markets are coming to terms with that. Meanwhile, much of the save haven bids were reversed after the (first round in) the French elections. The 2.34%-2.4% support zone looks solid.

US 10y yield

The Fed needs more evidence than just one slower-than-expected (May) CPI provided. June dots suggest one move in 2024 and four next year. The long end of the curve was also supported by increased odds of a Trump presidency after the debate with Biden. At the same time, softer US labour market data are fuelling the debate on the September Fed rate cut, steepening the curve.

EUR/USD

EUR/USD is stuck in the 1.06-1.09 range. The desynchronized rate cut cycle with the ECB taking the lead and a swing to the right in European elections pulled the pair to the 1.0665 area. However, the dollar also lost some momentum as the Fed is turning its focus to a potential softening of the labour market, potentially opening the way for policy easing in September.

EUR/GBP

Debate at the BOE is focused at the timing of rate cuts. May headline inflation returned to 2%, but core measures weren’t in line with inflation sustainably returning to target any time soon. Still some BoE members at the June meeting appeared moving closer to a rate cut. This might cap further sterling gains. Labour has yet to reveal its policy plans after securing a landslide election victory. EUR/GBP 0.84 is solid support.

Daily Pivots: (S1) 174.06; (P) 174.33; (R1) 174.70; More...

Intraday bias in EUR/JPY is back on the upside as recent up trend is trying to resistance. Sustained trading above 174.50 will target 138.2% projection of 164.01 to 170.87 from 167.52 at 177.00. On the downside, however, break of 173.50 minor support will turn bias to the downside for deeper pullback.

In the bigger picture, long term up trend is still in progress. Next target is 100% projection of 139.05 to 164.29 from 153.15 at 178.38. For now outlook will stay bullish as long as 170.7 resistance turned support holds, even in case of deep pullback.

Daily Pivots: (S1) 205.88; (P) 206.24; (R1) 206.60; More...

Intraday bias in GBP/JPY remains neutral at this point. Further rise is expected with 204.97 minor support intact. On the upside, sustained break of 100% projection of 191.34 to 200.72 from 197.18 at 206.56 will target 138.2% projection at 210.17. On the downside, below 204.97 minor support will turn bias to the downside for deeper pull back.

In the bigger picture, long term up trend is still in progress. Next target is 100% projection of 155.33 to 188.63 from 178.32 at 211.62. Outlook will stay bullish as long as 197.18 support holds, even in case of deep pullback.

Daily Pivots: (S1) 0.8446; (P) 0.8453; (R1) 0.8464; More...

Intraday bias in EUR/GBP remains neutral and outlook is unchanged. On the upside, sustained trading above 55 D EMA (now at 0.8495) will extend the rise from 0.8396 short term bottom to 0.8529 support turned resistance. Nevertheless, On the downside, break of 0.8493 support will suggest that the corrective recovery has completed. Intraday bias will be back on the downside for retesting of 0.8396 low. Firm break there will resume larger down trend.

In the bigger picture, down trend from 0.9267 (2022 high) is in progress. Next target is 100% projection of 0.8764 to 0.8497 from 0.8643 at 0.8376. Sustained break there will target 161.8% projection at 0.8211 next. For now, outlook will remain bearish as long as 0.8643 resistance holds, even in case of stronger rebound.

Daily Pivots: (S1) 1.6024; (P) 1.6053; (R1) 1.6071; More...

Intraday bias in EUR/AUD remains neutral for the moment. Consolidation from 1.5996 could extend further. Outlook will remain bearish as long as 1.6211 support turned resistance holds. On the downside, break of 1.5996 will target 100% projection of 1.6679 to 1.6211 from 1.6418 at 1.5950. Firm break there will target 1.5846 key support next.

In the bigger picture, fall from 1.7062 medium term top is seen as a correction to the up trend from 1.4281 (2022 low) only. Strong support is still expected between 1.5846 and 38.2% retracement of 1.4281 to 1.7062 at 1.6000 to bring rebound. Break of 1.6148 resistance will argue that the correction has completed.

Daily Pivots: (S1) 0.9696; (P) 0.9714; (R1) 0.9727; More....

Intraday bias in EUR/CHF stays neutral at this point, as consolidation from 0.9754 is extending. Further rally is expected with 0.9639 support intact. On the upside, above 0.9754 will resume the rebound from 0.9476 to retest 0.9928 high. Nevertheless, break of 0.9639 will turn bias back to the downside for 0.9476 low instead.

In the bigger picture, rebound from 0.9252 medium term bottom might not be completed yet. But even in case of resumption, strong resistance could emerge from 1.0095 to limit upside. Medium term outlook will be neutral at best as long as 1.0094 structural resistance holds. Meanwhile, break of 0.9476 will bring retest of 0.9252 low.

Daily Pivots: (S1) 1.3624; (P) 1.3636; (R1) 1.3647; More...

Outlook in USD/CAD remains unchanged and intraday bias stays neutral first. Corrective pattern from 1.3845 could still extend. Break of 1.3589 will target 100% projection of 1.3845 to 1.3589 from 1.3790 at 1.3534. Strong support would be seen there to bring rebound. On the upside, above 1.3686 minor resistance will turn bias back to the upside for 1.3790 resistance instead.

In the bigger picture, price actions from 1.3976 (2022 high) are viewed as a corrective pattern. In case of another fall, strong support should emerge above 1.2947 resistance turned support to bring rebound. Firm break of 1.3976 will confirm up resumption of whole up trend from 1.2005 (2021 low). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3176 at 1.4149.