GBP/NZD: Tech Forecast for the Week Ahead, Can the Uptrend Restart?

Pound Sterling is still some 2.8% down on the New Zealand Dollar in 2017 and while it has made some concerted attempts to regain lost ground as GBP/NZD went as low as 1.6791 in mid-January.

This is an exchange rate that is still somewhat in recovery mode with a strong surge at the start of the month imparting some positivity. 

We do however observe Sterling bulls to be struggling somewhat being unable to break above February's peak seen in the vicinity of 1.7487.

We are therefore arguably at a point where the market is reasting ahead of another pulse higher.

What levels should those with an interest in this market be keeping an eye on?

As we move through the new week we see the GBP/NZD snaking sideways below the 50-day moving average at 1.7315.

The moving average is often where market participants lay various orders in anticipation of other similar orders being found at the moving average. This assumption on market behaviour is where technical analysis gains its predictive powers.

It is moving broadly in a sideways range with substantial resistance from the 50-day moving average and the trendline above making upside progress difficult.

A move down looks possible but anything meaningful will only result from a break below the 1.7200 support level which if broken could potentially lead to a move down to the 1.6900 lows.

However, given the sideways nature of the market this is not a conviction call as a determined assault higher is also possible, especially given the strong surge at the start of February.

The technical progression will be guided on how data in New Zealand and political events in the UK play out over coming days. 

The main data release for NZD this week is an update of the New Zealand Dairy Price Index on Tuesday, which comes from a global dairy auction and indicates demand for New Zealand’s largest export – frozen milk.

In the previous week the index rose 1.3% after a spate of declines, and another rise would probably be supportive of the NZD.

Data for the Pound Over the Next Five Days

The week kicks off with the CBI Industrial Trends Survey in February on Monday at 11.00 GMT, which is supposed to produce a 3 from a 5 previously.

There then follows GDP data on Wednesday at 9.30, however, these are revisions from preliminary estimates already published, and are not expected to diverge.

At the same time as the GDP is released we will also see key Business Investment stats for the fourth quarter, which will tell the level with which Brexit concerns are restraining investment, although this has not particularly been the case up until now.

On Friday, February 24 meanwhile we shall see the release of Mortgage stats from the British Banker Association (BBA).

The UK focus seems more likely to shift back to politics over the coming week.

On Monday, Parliament reconvenes after its February recess.

The House of Lords will begin debating the government’s bill to enable the activation of the Article 50 process to leave the EU.

The bill emerged unscathed through the House of Commons, and the Lords seem likely to make only modest tweaks.

“But the amendments do not seem likely to endanger the government’s end-March timetable for activation. Depending on the extent of the proposed changes, activation could even coincide with the EU Council meetings scheduled for 8-10 March,” says Sawicki.

Should the Lords succeed in making amendments to the Bill we would expect this to be positive for the UK currency.

We have seen over recent months that markets tend to like the idea of increased parliamentary scrutiny as it suggests a ‘softer-Brexit’ is a likely outcome.