Daily Forex Market Preview, 08/02/2017
The New Zealand dollar is trading subdued ahead of the Reserve Bank of New Zealand's interest rate decision due later tonight. The Kiwi gave up the gains from yesterday spurred by higher inflation expectations, which overall point to a slower pace, if not putting an end to the easing cycle. The Kiwi also weakened on a stronger U.S. dollar yesterday. Data from the Commerce Department showed that the U.S. trade deficit narrowed in December, but for the year, the trade deficit rose to the highest level in over four-years. The British pound rallied after BoE policy maker announced her support for hiking interest rates, although declining from giving further details. The GBP gained as Forbes said that she was less tolerant to inflation overshoot.
Looking ahead, the economic calendar is relatively quiet although traders will now be watching BoE policy maker Jon Cunliffe speaking for any remarks on British interest rates. Crude oil inventories are up later in the afternoon with expectations of a build-up of 2.7 million barrels and at 20:00 GMT, the RBNZ will be announcing its rate decision, but no changes are expected to the OCR which stands at 1.75%.
EURUSD (1.0677): EURUSD extended the declines yesterday as price action broke straight through the 1.0700 support handle, indicating further weakness to come after a modest rebound saw prices being sharply rejected near 1.0700. Further downside continuation can be expected, but price action is nearing lower support at 1.0644, which offered to support prices around 30 January. A rebound off this support could see a temporary upside in EURUSD, potentially back towards 1.0700 and as far as towards 1.0737.
GBPUSD (1.2501): The British pound rallied sharply yesterday, closing the day with nearly 0.32% gains. The cable soared on the back of comments from BoE policy maker, Kristin Forbes who said that tolerance for the likely inflation overshoot has diminished and that a rate hike could be needed. GBPUSD which fell earlier in the day managed to quickly pare losses as the cable reversed off the 1.2400 round number support level. However, the currency pair is not out of the woods as yet, as support will need to be confirmed above this level to signal further upside towards 1.2800 which is the target based off the inverse head and shoulders found on the daily time frame. Alternately, if a correction to yesterday's rally fails to find support at 1.2400, then further declines could be seen coming towards 1.2200.
NZDUSD (0.7292): The New Zealand dollar is looking weaker ahead of the RBNZ meeting later tonight. The Kiwi was initially supported by some positive news the day before as inflation expectations edged closer to the mid-point of the RBNZ's inflation target rate. However, the Kiwi failed to hold on to the gains as NZDUSD fell sharply later in the day. Support is formed at 0.7300 which also marks the neckline support of the head and shoulders pattern that has formed on the 1-hour chart. A break down below this support could see NZDUSD extend the declines towards 0.7245 which is the next main support level. In the medium term horizon, NZDUSD is likely to turn to a sell as price action is likely to correct towards the main support at 0.705 which is yet to be tested.