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Key Highlights

• Bitcoin price crashed below the $60,000 and $58,500 support levels.
• BTC is trading below a key bearish trend line with resistance at $60,500 on the 4-hour chart.
• Ethereum tested the $2,850 support before there was an upside correction.
• Gold prices started a downside correction from the $2,392 level.

Bitcoin Price Technical Analysis

Bitcoin price failed to clear the $63,500 resistance zone and started a fresh decline. BTC/USD traded below many supports such as $60,000 and $58,500.

Looking at the 4-hour chart, the price settled well below the $60,000 zone, the 100 simple moving average (red, 4 hours), and the 200 simple moving average (green, 4 hours). The bears even dragged the price below the $56,500 support zone.

Finally, the price found support near the $53,500 level and is currently attempting to recover. The price climbed above the 38.2% Fib retracement level of the downward move from the $63,825 swing high to the $53,515 low.

On the upside, the price could face resistance near the $58,650 level and the 50% Fib retracement level of the downward move from the $63,825 swing high to the $53,515 low.

The first key resistance is near the $60,000 zone. There is also a major bearish trend line forming with resistance at $60,500 and the 100 simple moving average (red, 4 hours) on the 4-hour chart. A successful close above $60,500 might start another steady increase. In the stated case, the price may perhaps rise toward the $63,500 level.

Conversely, Bitcoin might extend losses. Immediate support is near the $56,000 level. The main support sits at $53,500. Any more losses might send the price toward the $50,000 support zone.

Today’s Economic Releases

• Federal Reserve Chair Jerome Powell testifies before Congress.
• US Monthly Budget Statement for Jun 2024.

AUD/NZD soars sharply higher after RBNZ softened its hawkish stance, incorporating language in its latest statement that suggests a shift towards monetary easing. This change has created prospects for stronger rally in the cross, driven by policy divergence between RBNZ and RBA.

In particular, if RBNZ moves to cut interest rates sooner than previously projected, while RBA raises rates in response to strong Q2 Australian inflation data, AUD/NZD could see even more significant gains in the medium term.

Technically, immediate focus is now on 1.1085 key medium term resistance (2023 high). Firm break there will confirm whole rebound from 1.0469 (2022 low). Next target will be 100% projection of 1.0567 to 1.1027 from 1.0730 at 1.1190.

Strong break of 1.1190 would bring upside acceleration to 161.8% projection at 1.1474 in the medium term. In any case, near term outlook will stay bullish as long as 1.0971 support holds for now.

RBNZ left OCR unchanged at 5.50%, as widely expected. The central bank softened its hawkish stance in the accompanying statement, indicating that the extent of monetary restriction "will be tempered over time consistent with the expected decline in inflation pressures." Markets interpreted this as a signal that RBNZ is moving closer to lowering interest rates.

RBNZ also acknowledged that its restrictive monetary policy has "significantly reduced consumer price inflation," with headline inflation expected to return to the 1-3% target band "in the second half of this year." This decline in inflation reflects both receding domestic pricing pressures and lower inflation for imported goods and services. Additionally, labor market pressures have eased.

While domestically generated price pressures "remain strong," RBNZ said there are signs that "inflation persistence will ease in line with the fall in capacity pressures and business pricing intentions."

Full RBNZ statement here.

Restrictive monetary policy has significantly reduced consumer price inflation, with the Committee expecting headline inflation to return to within the 1 to 3 percent target range in the second half of this year.

The decline in inflation reflects receding domestic pricing pressures, as well as lower inflation for goods and services imported into New Zealand. Labour market pressures have eased, reflecting cautious hiring decisions by firms and an increased supply of labour. The level of economic activity, including business and consumer investment spending and investment intentions, is consistent with the restrictive monetary stance.

Current and expected government spending will restrain overall spending in the economy. However, the positive impact of the pending tax cuts on private spending is less certain.

Some domestically generated price pressures remain strong. But there are signs inflation persistence will ease in line with the fall in capacity pressures and business pricing intentions.

The Committee agreed that monetary policy will need to remain restrictive. The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures.

Media contact

James Weir
Senior Adviser External Stakeholders
Phone: +64 4 471 3962 | Mobile: 021 103 1622
Email: James.Weir@rbnz.govt.nz

Summary Record of Meeting

The Monetary Policy Committee discussed recent developments in the domestic and global economies and the implications for monetary policy in New Zealand.

Global economic growth remains below trend and is expected to pick up only gradually over the next year. The economic outlook varies among New Zealand's trading partners, with economic growth in the United States remaining stronger than in many other advanced economies. Meanwhile, economic growth in China is forecast to be subdued relative to recent norms.

Global consumer price inflation has been trending down. This has given some central banks the confidence to either start, or to signal, a gradual reduction in policy interest rates. Nevertheless, monetary policy remains at restrictive levels in most advanced economies, and the recent stalling in global disinflation has tempered market expectations of the speed of official rate reductions.

The Committee noted that global equity prices continue to reflect expectations of a smooth disinflation process. Members discussed risks to this 'smooth landing' scenario, noting market pricing of risk could increase materially if these expectations are not met.

The Committee agreed that New Zealand's restrictive monetary policy is reducing domestic demand and consumer price inflation. The Committee is confident that inflation will return to within its 1-3 percent target range over the second half of 2024.

Members agreed that there is now more evidence of excess productive capacity emerging, with measures of capacity utilisation and difficulty finding labour easing materially. The Committee noted that recent higher frequency indicators suggest that near-term growth in business activity has weakened. A range of business and consumer surveys, and higher frequency spending and credit data, all point to declining activity. Members discussed the risk that this may indicate that tight monetary policy is feeding through to domestic demand more strongly than expected.

The Committee discussed signs of easing in the labour market. Recent survey measures of hiring intentions and job vacancies indicate flat employment levels. Net migration has also fallen in recent months to levels consistent with the pre-COVID period.

Members discussed recent changes to financial conditions in New Zealand. Non-performing bank loans and corporate insolvencies have increased from low levels in line with declining economic activity. These metrics are slow moving, and hence measures of financial stress are expected to keep rising. Bank credit growth also remains very subdued, in line with weakness in the domestic economy and low business and consumer confidence. Bank funding costs are expected to remain elevated as funding sources revert to higher cost wholesale and deposit funding. Elevated funding costs in turn are expected to underpin lending rates over the medium term.

The Committee discussed the impact of fiscal policy as announced in the Government's Budget 2024. Government expenditure is forecast to decline as a share of the economy in coming years. Members noted timing differences between the impact of lower government spending and tax policy changes. Lower government spending has already been contributing to weaker demand and will continue to do so. However, the positive impact of tax cuts on private spending is yet to occur and is more uncertain.

Members discussed progress towards achieving their inflation objective. Recent monthly Selected Price Indexes suggest weakening in some of the more volatile inflation components, while survey measures of cost pressures and pricing intentions have continued to decline. Headline inflation is expected to return to within the 1 to 3 percent target range in the second half of this year. Domestic inflation measures remain more persistent, but growing excess capacity in the domestic economy provides greater certainty that they will sustainably decline.

The Committee discussed the balance of risks to the inflation outlook. Members noted a risk that domestically driven inflation could be more persistent in the near term. However, there is also a risk that price setting behaviour and inflation expectations could normalise more rapidly as headline inflation declines.

Members discussed risks to the economic outlook stemming from Government policy. They discussed the challenge of delivering fiscal consolidation. In addition, some members noted that Government regulatory reforms may affect pricing behaviour in several sectors and the productive capacity of the economy. The net impact of these policies remains uncertain.

The appropriate stance of monetary policy was discussed. The Committee agreed that monetary policy will need to remain restrictive. The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures.

On Wednesday 10 July, the Committee reached a consensus to maintain the Official Cash Rate at 5.50 percent.

Attendees

MPC members: Adrian Orr (Chair), Bob Buckle, Carl Hansen, Christian Hawkesby, Karen Silk, Prasanna Gai.
Treasury Observer: Tim Ng.
MPC Secretary: Chris Bloor.

• USDJPY reversed from the key support level 160.00
• Likely to rise to the resistance level 162.00

USDJPY currency pair recently reversed up from the key support level 160.00 (former resistance from April, which stopped the previous impulse wave (1)).

The upward reversal from the support level 160.00 started the active minor impulse wave v, which belongs to the impulse wave 3 from the start of June.

Given the predominant daily uptrend and the bullish USD sentiment, USDJPY currency pair can be expected to rise further to the next resistance level 162.00 (which stopped the previous impulse wave iii at the start of July).

• GBPUSD reversed from the long-term resistance level 1.2850
• Likely to fall to support level 1.2725

GBPUSD currency pair is under bearish pressure after the earlier downward reversal from the long-term resistance level 1.2850, which has been reversing the price from the start of March.

The downward reversal from the resistance level 1.2850 created the daily Japanese candlesticks reversal pattern Shooting Star Doji – which stopped the previous ABC correction 2.

Given the strength of the resistance level 1.2850 and the still overbought daily Stochastic, GBPUSD currency pair can be expected to fall further to the next support level 1.2725.

The euro is showing little movement on Tuesday. EUR/USD is trading at 1.0819, up 0.05% on the day.

The eurozone Sentix Investor Confidence index resumed its losing ways on Monday. The index slid to -7.3 in July, after a 0.3 gain in June. Prior to the June reading, the index had declined continuously since March 2022. There have been signs that the eurozone economy is finding its feet but investors aren’t showing any optimism over the eurozone’s economic outlook.

The inflation picture has improved greatly in the eurozone. The ECB’s steep rate-tightening cycle has slashed inflation from double-digits down to 2.5% in June. Inflation is still above the ECB’s inflation target of 2% but the central bank took the plunge and lowered rates last month, confident that inflation will move lower.

ECB Vice President Luis de Guindos said last week that he expected a “bumpy road” for inflation in the coming months and that there was no predetermined path for rate decisions. The markets have priced in a cut at the July 18 meeting at 33% but see a strong chance of two rate cuts before the end of the year. Whether that forecast materializes will depend to a large extent on inflation data. ECB policy makers are particularly concerned about services inflation, which is running at a 4.1% clip.

Fed’s Powell testifies on Capitol Hill

Fed Chair Powell is testifying about monetary policy before a Senate banking committee and the markets will be looking for clues about a September rate cut. Powell sounded hawkish at the ECB forum in Portugal last week, reiterating that the Fed needs to see further evidence that inflation will continue to fall before hitting the rate-cut button. The markets are more optimistic and smell a September cut. The probability of such a move has climbed to 72%, compared to 63% a week ago and just 46% one month ago, according to the CME’s FedWatch tool.

EUR/USD Technical

• EUR/USD is testing resistance at 1.0824. Above, there is resistance at 1.0845
• 1.0802 and 1.0781 are providing support

In his prepared remarks for the semiannual testimony to Congress, Fed Chair Jerome Powell reiterated that it is not appropriate to cut interest rate until there is "greater confidence" that inflation is moving sustainably toward 2%.

Nevertheless, He noted that recent inflation readings have shown "modest further progress," and that "more good data" would strengthen this confidence.

Powell emphasized the Fed's "meeting by meeting" decision-making process, warning that reducing policy restraint "too soon or too much" could "stall or even reverse the progress" on inflation.

Yet, he also acknowledged that, with significant progress made in lowering inflation and cooling the labor market over the past two years, "elevated inflation is not the only risk" faced by the Fed. Delaying policy adjustments "too late or too little" could "unduly weaken economic activity and employment."

Full remarks of Fed's Powell here.

Markets

European markets were captured in an indecisive trading pattern yesterday, in the wake of the surprise win of the left alliance in the French elections. Spreads of France (and other peripheral EMU countries) initially tightened marginally as none of the extreme parties secured a majority to implement uncontrolled spending. However, from a longer term perspevtive, the fiscal situation in most semi-core and peripheral countries remains challenging. Today most intra-EMU spreads (including of France) again (partially) reversed yesterday’s tentative narrowing (France +2 bps vs Bunds, Spain & Belgium also +2 bps) . The European fiscal premium is here to stay (cf infra). In technical trading, German yields added between 1.5 bps (2-y) and 2.5 bps (30-y). At least for now, investors stay cautious to push for a more aggressive pricing on further ECB interest rate cuts (September not yet fully discounted). US markets in the meantime almost fully discount two 25 bps Fed rate cuts toward the end of the year in the wake of recent softer price and labour market data. In this respect markets at least expect some opening from Fed Chair Powell at the hearing before the Senate Banking Committee that recent data, if confirmed, might give the Fed more confidence to cut rates earlier than what was guided by the June Fed dots (one 25 bps cut this year, four next year). At the time of writing, no text of Powell’s appearance is available yet. US yields are are rising marginally (< 2.0 bps) going into Powells’ hearing. European equities remain in the defensive (EuroStoxx 50 -0.9%). US equities (S&P +0.2%, Nasdaq + 0.35%) are holding near/at record levels.

Very little to report on the major FX cross rates. The dollar gains marginally (DXY 105.1). EUR/USD fails to buid on recent constructive momentum (EUR/USD 1.082). The yen again weakens north of USD/JPY 161 (1). Sterling (Cable 1.281) also takes a breather ahead of key resistance (1.2860/94).

News & Views

Hungarian inflation came in slower than expected in June. Prices were unchanged on a monthly basis, missing the bar for a 0.2% rise. The y/y figure as a result eased from 4% to 3.7% vs 3.9% consensus, thereby revisiting the upper range of the central bank’s 3% +/- 1 ppts target. Declining prices for food (-0.3% m/m) and for electricity, gas and other fuels (-2.3% m/m) were compensated by higher prices for alcoholic beverages and tobacco (+1%) and services (+1%). Core inflation across all gauges is still above target, ranging from 4.1% to 5.6%. High core CPI is one of the Hungarian central bank’s key worries, along with fears that sharp (real) wage gains could reignite already elevated inflation again. It downshifted the cutting pace to 25 bps (to 7%) last month and hinted it entered a different monetary phase where it won’t cut rates at each and every next meeting. The bumpy inflation path, delayed Fed & slow ECB cuts as well as a generally weak forint mean the central bank has to tread cautiously. Hungarian swap yields do drop around 7.5 bps in the wake of today’s release. Money markets assume around three more 25 bps cuts by the end of the year, in line with the KBC scenario. EUR/HUF is hovering around 395.

Rating agency Moody’s said the outcome of the French parliamentary elections is a negative for the country’s credit rating. "In light of the constraints that any future government faces, we are unlikely to see expenditure-based fiscal consolidation in 2025," Moody's said in a note referring to the fiscal implications of a hung parliament. Further tax hikes are also unlikely, it added, noting that the country’s tax-to-GDP is already the highest in the OECD. France enjoys a Aa2 rating with a stable outlook at Moody’s. In its first comment since Labour’s landslide victory in the UK, rating agency S&P pointed out that stronger economic growth is key to stabilize the country’s rising public debt. S&P forecasts the UK’s debt ratio to hit 100% ratio next year and expects the new government to uphold a commitment to improve public finances. The country’s AA rating with a stable outlook at S&P is one notch higher than at rating peers Fitch (AA-) and Moody’s (Aa3-).

Graphs

EUR/HUF: forint stays in the defensive as soft June CPI data keep debate on further rate cuts alive.

US 2-y yield: dropped below 4.70% support as markets see the Fed giving more weight to softer labour data.

CAC 40: French stocks underperform as fiscal uncertainty lingers

DXY TW dollar: decline taking a breather as markets await more guidance from the Fed.