NZD/USD Retains Bearish Momentum Ahead of RBNZ- 0.7175 in Focus (based on dailyfx article)
Trading the News: U.S. Retail Sales (based on dailyfx article)
Why Is This Event Important:
The Fed may stay on course to normalize monetary policy in mid-2015 as
the central bank anticipates lower energy prices to boost private-sector
consumption – one of the leading drivers of growth – and Chair Janet
Yellen may adopt a more hawkish tone at the March 18 meeting as the
board remains confident in achieving the 2% target for inflation.
Nevertheless, subdued wages along with the slowdown in private-sector
credit may drag on retail spending, and another unexpected contraction
may further delay the Fed’s normalization cycle as the ongoing weakness
in household earnings undermines the central bank’s scope to achieve the
How To Trade This Event Risk
Bullish USD Trade: U.S. Retail Sales Rebounds 0.3% or Greater
MetaTrader Trading Platform Screenshots
EURUSD, M5, 2015.03.12
MetaQuotes Software Corp., MetaTrader 5
EURUSD M5: 65 pips price movement by USD - Retail Sales news event
NZDUSD, M5, 2015.03.12
NZDUSD M5: 45 pips price movement by USD - Retail Sales news event
NZD/USD rallies over 1% after RBNZ holds rates (based on nasdaq article)
The New Zealand dollar rallied over 1% against
its U.S. counterpart on Thursday, after the Reserve Bank of New
Zealand left interest rates on hold, citing strong economic
NZD/USD hit 0.7389 during late Asian trade, the pair's highest
since March 9; the pair subsequently consolidated at 0.7408,
The pair was likely to find support at 0.7249, the low of March
10 and resistance at 0.7519, the high of March 6.
In a widely expected move, the RBNZ held its benchmark interest
rate at 3.50% and signalled that borrowing costs should remain
unchanged through 2017.
Commenting on the decision, RBNZ Graeme Wheeler said "Our
situation is quite different from some of those countries that have
changed monetary policy or cut interest rates."
The economy is "growing at 3.25%, perhaps 3.5% and we're
projecting it to continue to grow at those sorts of rates over the
next two years," he added.
Meanwhile, the greenback weakened as investors eyed data on U.S.
retail sales and initial jobless claims due later in the day, after
the currency rallied broadly on the back of last week's strong
The kiwi was also higher against the euro, with EUR/NZD dropping
0.79% to 1.4343.
NZD/USD Technical Analysis: Recovery Seen as Corrective (based on dailyfx article)
The New Zealand Dollar launched
a recovery against its US counterpart, putting in the largest daily
advance in two months. Near-term resistance is at 0.7444, the 23.6%
Fibonacci expansion, with a break above that on a daily closing basis
exposing the 14.6% level at 0.7508.Alternatively, a reversal below the 38.2% Fibat 0.7340 opens the door for a challenge of the 50% expansion at 0.7256.
We see the dominant NZDUSD trend as bearish. As
such, we will treat any on-coming gains as corrective, looking to enter
short at a more attractive level rather than a seeing the move higher as
a buying opportunity. In the meantime, we remain flat.
AUDIO - Rate Spotting with Don Dawson
With so many speculating on when the fed will ultimately raise interst rates, Master trader Don Dawson
prefers to follow the money! Back in September of 2014, the money said
the big boys were betting on June for a hike, and things have changed!
Don walks through his method for spotting what the institutions are
doing, and also offers some insights into popular commodity futures such
as grains and interest rate products.
Trading News Events: Canada Employment Change (based on dailyfx article)
A 5.0K contraction in Canada Employment paired with an uptick in the
jobless may drag on the loonie and produce fresh 2015-highs in USD/CAD
as it fuels speculation for a further reduction in the Bank of Canada’s
(BoC) benchmark interest rate.
Why Is This Event Important:
Even though BoC Governor Stephen Poloz endorses a wait-and-see
approach, a dismal labor report may encourage the central bank to adopt a
more dovish tone at the April 15 policy meeting in order to encourage a
Nevertheless, lower input costs accompanied by the pickup in private
sector activity may encourage Canadian firms to boost their labor force,
and a positive development may keep the USD/CAD range intact as the BoC
looks to retain its current policy over the near-term.
How To Trade This Event Risk
Bearish CAD Trade: Canada Sheds 5.0K Jobs or Greater
US Dollar Fundamentals (based on dailyfx article)
Fundamental Forecast for Dollar: Neutral
The day of reckoning is almost upon us. This Wednesday, the Federal Open Market Committee (FOMC) will deliver its forecasts for economic trends and interest rates.
These projections are neither promises for action nor a commitment to a
rigid time frame. In isolation, they may not have much sway over the
Dollar or capital markets. However, context is everything. For the past
six-years, stimulus has been a ubiquitous feature of the market and many
believe the backbone to the exceptional exposure the markets have taken
on. There is certainly big picture influence in this event. Then again,
it also possess a short-term volatility risk – particularly for the
Dollar – as a recent surge in speculative anxiety has focused the
There are eight FOMC policy meetings a year and
those that fall on the standard quarters come with updated forecasts
from the Committee’s members as well as a press conference from the
Chairperson. The March 18 meeting falls on the quarter and will deliver
updated predictions for employment, inflation and interest rates along
with a closely dissected statement. There are a few things to watch in
this particular event. For the focus the media has shaped, the top concern will be with the use of the word ‘patience’.
Given that a central bank cannot commit to policy
ahead of time – data could change between their vow and the time of
action – the market looks to interpret their intentions through
carefully crafted remarks. Language was important for assessing the lead
up to QE2 and QE3, the end of QE3 and now the shift towards the first
rate hike. After the central bank capped its open-ended stimulus
program, the emphasis was placed on the suggestion that rates would be
held at an “exceptionally low” level for an “extended period”. Through
off-handed central bank remarks, the inclusion of this phraseology in a
statement was interpreted to mean the benchmark would be held near zero
for at least another six months. This was abandoned at the end of last
Now, the focus is on “extended period”s replacement:
“patient”. This particular adjective has been assigned a three-month
time span which – if it is dropped at this week’s meeting – would tip a June 17 rate hike.
The question that Dollar traders should be asking is how significant
the impact a change or maintenance of the language will be. Given the
currency’s record-breaking, eight consecutive month rally and the
aggressive 7 percent rally these past few weeks (on the ICE Dollar
Index); it would seem that the benchmark is set high. That said, there
is certainly room for the bulls to carry on. While a June time frame
seems the consensus amongst economists, Fed Fund futures are still
pricing in the first move out to the October 28 meeting. There is market
adjustment that can be made.
Looking beyond the excitement of timing the first rate hike for driving a pair like EURUSD
down to parity, it is worth considering the bigger picture. Even if the
first hike is realized in three months’ time, it is only a move off the
zero bound. Moving forward, the pace of subsequent policy tightening becomes increasingly important.
However, if the US does engage in a rate hike regime; it will
increasingly contrast to major central banks (ECB, BoJ, PBoC) that are
still exploring greater stimulus programs. So even if the FOMC
downgrades its average December 2015 rate forecast from its 1.125
percent forecast at the December meeting, context is important.
For FX traders, the focus of the upcoming event risk
is easily on the rates-Dollar connection. Yet, investors in any asset
should take note of this event for its influence speculative appetite. A ‘yield chase’ has developed out of years of excessive monetary policy coupled with a moderate recovery.
And, while the Fed’s own contribution to the system can notionally be
replaced by the growing stimulus in Europe and Asia, risk aversion can
still spread by the Fed’s shift. Given the dependency on low cost
capital (chased with leverage) and the easy of contagion transmission
across the global financial system (remember the Great Financial Crisis
began in US housing), sentiment is on the edge of an inflated balloon.
It also happens that the Dollar represents liquidity in a fire sale
USDJPY Fundamentals (based on dailyfx article)
Fundamental Forecast for Japanese Yen: Neutral
The Federal Open Market Committee’s (FOMC)
March 18 meeting may overshadow the fresh commentary coming out of the
Bank of Japan (BoJ) and heavily influence the near-term outlook for USD/JPY
as Chair Janet Yellen and Co. are widely anticipated to remove the
‘patience’ language from the forward-guidance for monetary policy.
The Fed may implement a more hawkish twist to the
forward-guidance and show a greater willingness to normalize monetary
policy in mid-2015 as the central bank remains upbeat on the economy.
Indeed, the 295K expansion in Non-Farm Payrolls along with the 5.5% unemployment rate
may raise the Fed’s scope to raise the benchmark interest rate in June
especially as the figure approaches the ‘natural rate of unemployment.’
However, the ongoing slowdown in retail/discretionary spending may
becoming a growing concern for the central bank as lower energy costs
largely fail to boost private-sector consumption, one of the leading
drivers of growth. With that said, the updated economic projections
coming out of the central bank may reflect a slower trajectory for the
normalization cycle as the Fed continues to combat the disinflation
In contrast, the BoJ interest rate decision may have
a limited impact on the USD/JPY should we may get more of the same from
Governor Haruhiko Kuroda.
The central bank head may continue to endorse a wait-and-see approach
as he remains confident in achieving the 2% target for inflation over
the policy horizon, and market participants may end up turning a
blind-eye to the event as we approach the end of Japan’s 2014 fiscal
With that said, the long-term outlook for USD/JPY
remains bullish as the FOMC remains well on its way to remove the
zero-interest rate policy (ZIRP), but the fresh development coming out
of the central bank is likely to heavily impact near-term volatility in
as market participants continue to speculate on the timing and the pace
of the Fed’s normalization cycle.
GBPUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for British Pound: Neutral
The British Pound tumbled to fresh five-year lows
versus the high-flying US Dollar as traders repriced UK interest rate
prospectives. Can a key Bank of England MPC Minutes report boost the
Sterling ahead of a critical US Federal Reserve interest rate decision?
A potentially pivotal week ahead points to major volatility across GBP pairs, and whether or not domestic yields can recover versus the USD equivalents will likely determine direction in the GBPUSD. The fact that the Sterling actually trades near 8-year highs versus the Euro (EURGBP
lows) helps explain the significance of interest rate differentials.
Traders have sent the Euro to major lows across the board as the
European Central Bank cuts interest rates into negative territory, while
the Sterling remains a relative outperformer as a higher-yielding
Will Bank of England MPC Minutes boost expectations
for the future of domestic interest rates? As it stands, interest rate
derivatives currently predict that the BoE and the US Fed will be the
only two G10 central banks to raise interest rates in the coming 12
months. Yet the Sterling has fallen significantly versus the US Dollar
as BoE Governor Mark Carney dampened speculation that rate hikes were
imminent. Carney highlighted GBP appreciation (versus the Euro) as a key
reason to keep interest rates lower for longer. It seems like a
paradox: the GBP remains strong because of beneficial interest rate
expectations, but currency strength itself makes those same rate hikes
Short-term forecasts for the Sterling seem
especially uncertain ahed of the release of Bank of England MPC Meeting
Minutes and a highly-anticipated US Federal Open Market Committee
meeting. FX options traders have sent 1-week and 1-month GBPUSD
volatility prices/expectations to their highest since the Scottish
Referendum. And with uncertainly surrounding upcoming UK Government
Elections, traders may prove especially skittish on any surprises.
NZDUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for the New Zealand Dollar: Neutral
The New Zealand Dollar managed to find support against its US counterpart after
the RBNZ signaled it was in no hurry to cut interest rates at its
monetary policy meeting. Governor Graeme Wheeler highlighted a range of
factors underpinning strong economic growth and dismissed soft inflation
readings in the near term as largely reflective of the transitory
impact of oil prices. Speaking directly to the benchmark lending rate, Wheeler projected “a period of stability” ahead.
Still, the familiar refrainwarning that “future interest rate adjustments, either up or down, will depend on the emerging flow of economic data”
was repeated. This makes for a news-sensitive environment going forward
as markets attempt to divine the central bank’s likely trajectory
alongside policymakers themselves. With that in mind, all eyes will be
on the fourth-quarter GDP data set in the week ahead.
Output is expected to increase by 0.8 percent, an
outcome in line with the trend average. On balance, that means a print
in line with expectations is unlikely to drive a meaningful re-pricing
of policy bets and thereby have little impact on the Kiwi. New Zealand
economic data outcomes have increasingly underperformed relative to
consensus forecast since January however. That suggests analysts are
over-estimating the economy’s momentum, opening the door for a downside
surprise. In this scenario, building interest rate hike speculation may
push the currency downward.
The external landscape is likewise a factor. A significant correlation between NZDUSD and the S&P 500
(0.52 on 20-day percent change studies) hints the currency is sensitive
to broad-based sentiment trends. That will come into play as the
Federal Reserve delivers the outcome of the FOMC policy meeting, this
time accompanying the statement with an updated set of economic
forecasts and a press conference from Chair Janet Yellen. Fed tightening
fears have proven to be a potent catalyst for risk aversion since the
beginning of the month. That means a hawkish tone is likely to sink the
Kiwi, while a dovish one may offer the currency a lift.