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NZD/USD Focus Shifts From Milk Prices To Employment Figures

Published 01/08/2017, 20:52
NZD/USD
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New Zealand’s employment figures for the second quarter will be released tonight at 23:45 BST (Wednesday morning NZ time). Employment is expected to have risen 0.7% in Q2 following an increase of 1.2% in Q1. The rate of unemployment is seen falling to 4.8% from 4.9 per cent previously. The numbers may have to beat expectations if the kiwi is going to sustain its recent rally, for earlier the fortnightly Global Dairy Trade (GDT) auction saw prices fall 1.6% following a 0.2% increase at the previous sale. Although whole milk powder prices rose 1.3%, skim milk powder prices declined 3.0 per cent. What’s more, butter prices dropped a good 4.9 per cent.

Why are we even talking about milk prices? Well, it is quite important for the New Zealand economy, as dairy products make up their main exports. So when dairy prices fall, it is not good for their economy and in turn its currency. Thus, kiwi bulls better hope that the employment figures will come in stronger tonight, otherwise there is a risk that the NZD/USD rally could falter.

From a technical perspective, the trend for the NZD/USD has been bullish ever since it trapped the sellers when it created a false breakout attempt below horizontal support at 0.6865 towards the end of April and start of May this year. Now it could be in the process of trapping the buyers: after breaking above the top of the recent resistance range at 0.7480/5 area it has failed to make significant further bullish progress. This may be due to profit taking after the recent upsurge, as investors awaited key New Zealand data. But from a purely technical perspective, any further move down below that broken 0.7480/5 level would be deemed bearish.

That being said, the kiwi will then face several support levels, including the area shaded in grey, where it had found resistance in the past. So the sellers will have lots of wood to chop if they are going to take control of the trend again. In the short-term, the breakout level at 0.7450 is the first key support to watch, which may get tested tonight. Given the overall bullish structure of price, I wouldn’t rule out the possibility of a strong rebound at or around this key support level. But from a bullish point of view, I would become more confident if the kiwi were to climb back and hold well above that 0.7480/5 level, ideally above 0.7520/5 resistance. In this potential case, I would then expect to see further range expansion to the upside with the 127.2% Fibonacci extension level at 0.7665 being my next objective.

NZDUSD Daily Chart

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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