NZDUSD bases against 100 hour MA/swing area
The NZDUSD – like a number of other currency pairs – is mired in a narrow trading range. The pair has a low-to-high trading range of only 35 pips. The average of the last 22 trading days (around a month of trading is 59 pips. The market is unsure which way he wants to go.
The up-and-down price action may be functional so of the RBNZ meeting on Wednesday in New Zealand (decision at 10 PM ET on Tuesday). The expectations are for a 25 basis point hike to 5.50%. The RBNZ last month hiked by 50 basis points which was higher than the 25 basis points expected. That took the rate to a 14 year high of 5.25%. They said there were continued upside risks to inflation from the severe weather earlier this year and government spending, and raised concerns about a possible fall in lending rates. The RNBZ targets inflation at 1-3%. The Shadow Board, a panel that gives recommendations to the Reserve Bank of New Zealand, is split over whether to increase the Official Cash Rate (OCR) in the upcoming May Monetary Policy Statement, according to a NZIER report. The majority of the Shadow Board members believe a 25 basis point increase to 5.50 percent is necessary due to persistent high domestic inflation pressures and an increased risk of inflation following weather events earlier in the year. However, a minority argue for maintaining the OCR at 5.25 percent. They contend that household inflation expectations are already moving in a positive direction and that monetary policy effects take time to materialize. Among these members, there’s concern about a continued decline in business profitability as consumers become increasingly cautious about spending.
Technically, the price lows today stalled within a swing area of 0.6258 and 0.62732. There were a number of different lows in that area today. Also near that level is a falling 200-hour moving average at 0.6261. The rising 100-hour moving average is moving toward that area as well at 0.62532 currently. It would take a move below all those levels to increase the bearish bias. On the downside, a break below would have traders looking toward 0.6202 – 0.62059, and below that, the low from last week narrows to 0.6181. With the current price trading around 0.6282. That would imply a move of about 100 pips on further downside momentum.
Conversely, if the price can remain above that swing area, traders were next to target a swing area between 0.6313 and 0.63183. Move above that and traders will look toward the May 8 high of 0.63582 followed by swing highs from May 10 and May 11 between 0.63759 and 0.63835.
Similarly to the downside targets, a move higher, and to the high target, would be about 100 pips from the current level..
So with the price currently at 0.6282, the price is in the middle of what would be extremes. Traders seem to be waiting for the Reserve Bank of New Zealand
Where was the price after the surprise of 50 basis point hike on April 5?
On that day, the price peaked at 0.63774 and then rotated back to the downside. The price didn’t return to that level until the extremes from May 10 and May 11 which took out the highs on its way to a new high going back to February 14 at 0.6383. Although the rate rise was much higher than expected, the NZDUSD could not sustain momentum.
That makes the trading decision more difficult of course. It’s not all about what happens with rates and go with the hawkish or less hawkish bias. The good news is that the technical levels are known with swing area and MAs the key targets.