RBNZ expected to proceed with a double rate cut

USD bulls took a break yesterday and during today’s Asian session, with its upward movement being dented after reaching a 6-week high last Friday against its counterparts. We see the case for the greenback to maintain the initiative over other currencies in the FX Market and see the Fed’s intentions being the main driver behind USD’s direction. The extensively dovish expectations of the market seem to have been erased. After the hot US employment report for September, the market is now focusing on the release of the US CPI rates for September on Thursday as the next big test for the USD.

EUR/USD seems to be reversing its downward motion in today’s Asian session, aiming for the 1.1000 (R1) resistance line. The pair’s price action seems about to break the downward trendline guiding the pair for the past week, signaling an interruption of the downward motion. Yet, after the pair’s steep drop and given that it put the lower Bollinger band to the test, a correction higher was to be expected by the market and the downward trendline is about to be shifted to the right. Please note that the RSI indicator remains between the reading of 50 and 30, implying a bearish predisposition of the market for the pair. Should the bears maintain control as expected, we may see the pair once again taking aim of the 1.0890 (S1) line. For a bullish outlook we would require EUR/USD to break the 1.1000 (R1) line and take aim of the 1.1100 (R2) level.

During tomorrow’s Asian session, we get from New Zealand, RBNZ’s interest rate decision. The bank is expected to proceed with a 50 basis-points rate cut and currently NZD OIS imply a 99% probability for such a scenario to materialise. Should the bank cut rates as expected we may see a slightly bearish reaction for the Kiwi, given that the market may have already priced in such a scenario. In such a case we may see the market turning its attention towards the bank’s forward guidance and overall, we see the case for the bank to have a dovish inclination which could weaken the NZD. Yet given that the market is currently expecting another double rate cut to follow, should the bank not display the necessary dovishness to adhere to the market’s calls, we may see the Kiwi getting some support as the market may have to reposition itself. In a more aggressive form, the bank may take the markets by surprise and proceed with a 25 basis-points rate cut, a scenario that is expected to provide asymmetric support for the Kiwi. Overall we see risks related to the event as tilting to the bearish side, yet the bank may take the markets by surprise.

NZD/USD maintained its downward motion, aiming for the 0.6090 (S1) support line. We tend to maintain our bearish outlook for the pair as long as the downward trendline incepted since the 30 of
September, remains intact. Please note that the RSI indicator is below the reading of 50 and aiming for the reading of 30, implying a bearish sentiment among market participants for the pair. Should the selling interest be extended we may see NZD/USD breaking the 0.6090 (S1) support line and aiming for the 0.6045 (S2) level. For a bullish outlook, we would require the pair to reverse course, break initially the prementioned downward trendline in a first signal that the downward motion has ended and continue to break the 0.6150 (R1) resistance line, with the next possible target for the bulls being set at the 0.6220 (R2) level.

その他の注目材料

Today we get Germany’s industrial output for August, while Fed Board Governor Kugler, ECB Board Member Schnabel, ECB Board Member McCaul and BoE Deputy Governor Breeden are scheduled to speak. Also we get Canada’s trade data for August and later the US API weekly crude oil inventories figure. On the monetary front, Atlanta Fed President Bostic and Boston Fed President Collins are speaking. During tomorrow’s Asian session, we get Australia’s Consumer sentiment for October while Fed Vice Chair Jefferson and RBA Assistant Governor Kent are speaking.