Pound-to-New Zealand Week Ahead: Hints of the Start of an Uptrend, but these are still Early Days
Sterling buys 1.9044 New Zealand Dollars at the start of the new week, down 0.45% on the previous week's close.
The Kiwi currency is seen enjoying a strong start to the week owing to the positive risk-on tone to global markets which tends to provide an upbeat mood music for the NZ Dollar.
The longer-term chart of the Pound-to-New Zealand Dollar shows the exchange rate currently trading in a range between roughly 2.000 and 1.9000, capped at the highs by the formidable 50-month moving average (MA).
The exchange rate is currently trading at 1.9133 at the bottom of the range but it is showing signs of rebounding and there is a chance of a reversal occurring from here - even if there is still insufficient evidence to be outright bullish.
The weekly chart above shows the range in more detail - it also shows how the highs and lows are book-ended by the 200 and 50-week MA's respectively, which appear to be funnelling price action into this tight range.
On the daily chart, we note that the move down from the mid-May highs has reached support from the 200-day MA at 1.9051 and bounced.
This is classic behaviour from prices which often stall or bounce when they touch major moving averages, even if they have been trending quite strongly. Sometimes they even reverse.
This is because a higher proportion of traders use these levels as decision making tools and therefore there is greater volatility in supply and demand dynamics around them.
Whilst the trend, on balance, remains bearish and we see a greater chance of it extending lower than reversing, the rebound off the 200-day has been strong and could be the early stages of a recovery - it's just too early to say with any certainty yet.
The four-hour chart above is also showing a strong rebound developing from the recent lows and the emergence of a possible three white soldiers Japanese candlestick reversal pattern.
These patterns are made up of three long white or green periods in a row from off of a major low - such as this one.
Assuming the current candle maintains its long form and the pattern continues to resemble three white soldiers (an example of which is shown below), there is a very good chance the pair will continue to rally higher, since this is a strong indicator of a change in the fairly long-term trend (depending on timeframe).
(Image courtesy of Forexpeacearmy.com)
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Week Ahead: GBP
Monday, June 4: Construction PMI for May, consensus forecast is for 51.9, the previous month read at 52.5.
Typically the construction PMI is ignored by markets, but owing to the slowdown we saw at the start of the year, and a focus on future Bank of England policy, foreign exchange markets will be paying more attention to this release than normal.
They will be looking for a clear sign that growth in this sector - a sector that has struggled over recent months - is back. A beat on expectations could help Sterling, a miss will likely weigh on the currency.
Tuesday, June 5: Services PMI for May, consensus forecast is for 53.1, up on April's 52.8.
The services sector accounts for over 80% of UK economic activity and it is therefore no wonder this is likely to form the highlight for Sterling in the coming week.
Thursday, June 7: We get a slew of house price data which is unlikely to hurt or help Sterling. Nevertheless, surprises will catch some attention. The RICS house price balance is forecast to deliver a reading of -1% and the Halifax house price index is forecast to show a reading of 1% on a month-on-month basis.
Friday, June 8: Industrial and manufacturing production numbers are on the docket. Consensus forecasts for industrial production for April is at 3.1% on an annualised basis, up from the previous month's 2.9%.
Consensus forecasts for manufacturing production are for -0.2% for April on an annualised basis, down on the previous month's -0.1%.
With sentiment towards Sterling rather dreary on the economic front we would suggest the risk-reward ratio lies to the upside, as positive surprises tend to deliver the greatest impact when consensus is poor. In short, bad economic news is largely in the price of Sterling.
Week Ahead: NZD
A very quiet week ahead for the New Zealand Dollar with little market-moving economic data due for release with the Global Dairy Trade Price Index due out on Tuesday June 5 being the only item of interest. The previous reading was at 1.9%, and markets will be looking for an improvement if the NZD is to catch a bid.
This tells us that technical considerations will matter as will global investor sentiment. And investor sentiment has taken a turn for a worse of late with news of significant tariffs being imposed on imports from the largest trading partners of the U.S.
The already-announced, and expected, retaliatory measures by Canada, Mexico and the E.U. will prove to be the next step in the trade war, and we almost certainly expect the U.S. to respond with fresh measures.
Expect investor sentiment to be subdued in this environment, which should in turn weigh on the NZD which tends to climb when 'risk is on' and reverse when investors are nervous.
Keep an eye on the headlines then.
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