The GBP/NZD X-Rate: Forecast For the Coming Week
The Pound has come under notable pressure against the New Zealand Dollar through the opening savlos of 2017.
However, from a purely technical perspective, caution is advised for those considering selling GBP/NZD as the exchange rate may have come to the end of its current move lower.
Whilst there is no doubt the strong short-term downtrend remains intact and is showing no real signs of ending, the pair has now reached a key target, which suggests short-sellers may begin to cover.
The target is based on the height of the consolidation pattern, or fulcrum pattern at the highs.
The pair now appears to have moved the same distance as the height of the pattern after breaking out of it to the downside.
If the height is ‘x’ as labeled on the chart above and the length of the breakdown ‘y’ then when x=y the pair has reached a major target.
X=y at roughly the 1.7000 level, which the exchange rate is just above.
It is possible the pair may move even lower pushing well below 1.7000 and down, but initially there may be a pull-back now so it might be better to wait before initiating more shorts.
Data for the New Zealand Dollar (Kiwi)
The main event for the Kiwi will be the Global Dairy Trade Auction at 10.00 GMT on Tuesday, January 17.
After trending higher for quite some time Global Dairy Trade Prices took a worrying tumble at the last auction, so analysts will be watching carefully to see if prices manage to recover on Tuesday, or whether the contraction is more enduring.
Dairy products are a major export for New Zealand and the Kiwi can sometimes respond in tandem to prices.
Other important data in the week ahead includes Q4 CPI at 21.45 on Wednesday, January 20.
Previous lacklustre price rises of only 0.2% in Q3 prompted concerns the Reserve Bank of New Zealand would begin a new phase of monetary easing to help support demand and if inflation continues to show a lack of growth they may cut interest rates even further.
Such a move would weaken the kiwi as lower interest rates attract less foreign capital, which tends to flow to countries which can offer a higher return (interest).
Be Aware - the Pound Could be Rocked Monday by Latest Brexit Revelations
The big news for Sterling over the weekend were reports that Theresa May will make immigration a red line in upcoming Brexit negotiations.
This suggests the UK is to give up seeking access to the European single market.
Reports have suggested she will signal pulling out of the EU single market and customs union, although Downing Street described this as "speculation".
"All eyes on PM May as she outlines the government's Brexit strategy in a speech this week (Tue). Early indications suggest single market access is unlikely to be retained - a headline which could send GBP sharply lower," says Viraj Patel at ING in London.
In an interview with German Welt am Sonntag newspaper, Chancellor of the Exchequer Philip Hammond said he was "optimistic" a reciprocal deal on market access could be struck, and that he hoped the UK would "remain in the mainstream of European economic and social thinking".
"But if we are forced to be something different, then we will have to become something different," he said.
It seems the Government is prepared to exit the single market and we watch for some notable volatility in Sterling when markets open on Monday.
Data for the Pound
UK inflation data is released on Tuesday, January 17, at 9.30 (GMT).
CPI is expected to come out at 1.4% year-on-year in December, up from 1.2% in the previous year, and 0.3% month-on-month.
A higher-than-expected rise in CPI is likely to weigh on the Pound as it will be seen as negative for the economy.
Higher inflation will be interpreted as resulting from a weaker Pound rather than growth and will, therefore, be seen as putting pressure on already stretched household incomes.
Wednesday, Jan 18 at 9.30 sees the release of Employment Data, including the Unemployment Rate, Average Earnings and the Claimant Count.
Earnings are expected to rise 2.6% rise in November, and the Claimant Count by 5.0k.
The Unemployment Rate is expected to come out at 4.8%.
On Friday, January 20, Retail Sales are scheduled for release at 9.30, and expected to show a 0.2% rise month-on-month in December.
Year-on-year, they are expected to show 7.2% growth in December.
