Chart of The Day NZDUSD

NZDUSD Probable Price Path & Potential Reversal Zone

NZD: Dairy prices increased by 4.8% at last night’s Global DairyTrade auction, better than we had expected and taking the index to its highest level since 2014. Meanwhile, whole milk powder prices rose by 2.2%, reaching their highest level since the start of 2017. Firm demand, higher international grain prices, signs of slower growth in EU milk supply, and some concern about subdued NZ milk supply were all supportive factors going into the auction. The result will put further upward pressure on domestic milk price forecasts, which are mainly congregated around the $7 mark, in the middle of Fonterra’s $6.70-$7.30 range. There was little market reaction in either NZ rates or the currency to yesterday’s QSBO business survey. Net confidence increased further, to -16 from -38 (seasonally adjusted), while firms’ employment and investment intentions also increased sharply. Notably, there were renewed signs of labour market shortages and capacity constraints, especially in the construction sector, although pricing expectations remained subdued.

USD: US equity markets closed higher overnight in anticipation of the Biden administration and Janet Yellen at the helm of the Treasury. During her confirmation hearing for Treasury Secretary, Janet Yellen said she would not pursue a weak USD, but argued that aid for the unemployed and small businesses gives the “biggest bang for the buck”. In addition, she also hinted at the possible issuance of 50-year bonds while sounding tough on China’s “abusive” trade practices on IP theft, product dumping and illegal subsidies. The S&P 500 gained 0.8%, with Netflix adding 8.5m subscribers to cross 200 million whereas Goldman and BofA earnings were mixed. Meanwhile, VIX retreated to 23.24 overnight and UST bonds traded in a range with the 10-year bond yield hugging 1.09% despite an initial knee-jerk reaction to Yellen’s hints of adding a 50-year bond. Elsewhere, the IEA cut its 2021 global oil demand forecast by 600k barrels a day, indicating that “it will take more time for oil demand to recover fully as renewed lockdowns in a number of countries weigh on fuel sales”.

From a technical and trading perspective, the NZDUSD is in the latter stage of potentially completing a three wave corrective pattern versus the B wave swing high at .7240 which has a downside equality objective at .7072, this area coincides with daily and monthly projected range support. Watch for bullish reversal patterns to confirm the pattern, if this pattern plays out hen we can reasonably expect a new advance to retest prior cycle highs above .7300 en-route to an ideal upside objective of .73800/.7400

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