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- GBP/NZD uptrend to extend, short-term charts show.
- Bu bearish signals are coming from the weekly charts.
- BOE meeting to impact Pound; China data up for Kiwi.
The Pound-to-New Zealand Dollar rate is trading at 1.9389 at the start of the new week after closing about a tenth of a percent lower on Friday, although the market remains within an uptrend that looks set to extend over the coming days.
The technical outlook remains bullish in the short-term but is mixed in the medium-term.
On the daily chart the pair’s repeated attempts to push above the range highs ended in success last week after the market broke higher on Wednesday, before peaking at 1.9621. However, this was followed by a swift and rapid decline back down to 1.93 area over Thursday and Friday.
Above: Pound-to-New-Zealand-Dollar rate shown at daily intervals.
The move lower can be seen in more detail on the 4-hour chart. It looks steep, with an uninterrupted sequence of 8 down-bars and could even be signaling the start of a new short-term trend lower.
However, the market has not yet formed two lower lows and lower highs, which would be the first sign we would be looking for to indicate a change of trend. Instead, the uptrend remains dominant and a break above the 1.9621 highs would confirm a continuation higher to a target at 1.9700 initially.
The 1.98, 1.99 and eventually the key 2.00 round number would come into view once the 1.9621 high has been overcome. The bullish outlook is supported by the fact the market is currently sat just above two major moving averages (MAs), the 50 and 200-day, which are suggesting the path of least resistance may be higher.
Above: Pound-to-Kiwi rate shown at 4-hour intervals.
The weekly chart is more ambiguous. Although the pair has been rising up in an ascending channel since the December lows, which is a bullish factor, there are bearish signals coming from the longer-term charts too.
The fact the 200-week moving average has successfully capped gains and is preventing more upside is quite bearish. Large averages can sometimes mark major turning points in trends and this could be the point at which the uptrend reverses.
The patterned nature of the price action on the weekly chart supports this view. It shows the possible makings of an ABCD or Gartley pattern, which are large 3-wave zig-zags in which the first and third wave are of similar length.
It seems as if we are currently in the middle of the intermediate B-C wave. If this is in fact a Gartley pattern then the C-D wave will take the price substantially lower, likely to a target around 1.7500.
Above: Pound-to-Kiwi rate shown at weekly intervals.
The New Zealand Dollar: What to Watch
The main release for the New Zealand Dollar in the week ahead is probably Chinese manufacturing PMI due to the two countries' close trade ties.
Chinese PMI data for April will either confirm or contradict the Caixin/IHS Markit PMI survey data of 2019, which has suggested the Chinese industrial sector is rebounding out of the trade-war-trough carved out for it by President Donald Trump's tariffs last year.
The PMI data showed China's manufacturing sectro unexpectedly returning to growth in March. If this rebound is continued in the figures released this week then it will be positive for both the Chinese economy and the New Zealand Dollar (Kiwi).
Some analysts are sceptical about the likely outcome of the data.
“Investors should wait before counting their chickens as the official manufacturing gauge (Tuesday) is predicted to stay unchanged at 50.5 in April, while the Caixin PMI (Thursday) is forecast to edge only marginally higher to 50.9,” says Raffi Boyadijian, an economist at FX broker XM.com.
The Reserve Bank of New Zealand (RBNZ) is one of the more likely central banks to cut interest rates amid the current global slowdown. Lower interest rates are generally negative for currencies as they lead to lesser inflows of foreign capital, which tends to prefer jurisdictions with rising rates of return.
This may lead to an increased focus on labour market data, out on Tuesday, at 23.45 BST. The unemployment rate is forecast to fall to 4.2% in Q1 from 4.3% previously. An even deeper fall would be positive for the Kiwi because it could reduce chances of the RBNZ cutting interest rates.
Also significant next week will be the ANZ business outlook survey for April on Tuesday at 2.00. This too may impact on RBNZ rate expectations.
“Weak business sentiment has been a major concern of the RBNZ as it contradicts the actual data, which hasn’t been quite as dismal,” says Raffi Boyadijian. “The bank is worried that persistently low business confidence would eventually drag on economic growth because it tends to hold back corporate investment.”
The Pound: What to Watch This Week
The main event for the Pound is the Bank of England (BOE) rate meeting which will end with an announcement on Thursday at 12.00 BST.
The BOE is not expected to raise interest rates at the meeting despite robust economic data. Actual growth remains subdued at 1.2% (the weakest since 2009) due to business uncertainty going "through the roof" because of Brexit, so it is unlikely the Bank will want to change rates until after more clarity emerges.
Despite talk of a ‘grab and go’ rate hike in August, Reuters polls forecast rates will not move until early 2020, a calendar quarter later than was forecast a month ago.
The hunt for a new governor to replace Carney in October adds more uncertainty to the mix.
The BOE will publish its quarterly inflation report at the May meeting which includes the latest economic projections, and this is likely to garner more attention than usual - and possibly produce more volatility.
The pound is unlikely to see a big reaction to the BOE decision but any dovish tilt by the Bank - dovish meaning in favour of lower interest rates - could weigh on Sterling, which slipped to 10-week lows versus the US dollar this week.
Lower interest rates or the threat of them can be negative for a currency because they detract from foreign investment inflows, which tend to favour jurisdictions which can offer higher interest returns.
The other major release in the coming week are the release of PMIs for April. These may be closely watched as they recently declined in contraction territory which is defined as a reading below 50. They are seen as a forward indicator for the economy so this raised concerns softer official economic data is coming.
Although official UK data has not yet followed in their footsteps, another gloomy set of PMIs could increase the risk it will.
The Manufacturing PMI is out on Wednesday at 09:30 B.S.T.
In March the PMI rose because of stockpiling by companies preparing for a potentially distruptive Brexit, rather than due to genuine growth. The number expected by markets is 53.2, down from the previous month's 55.1.
Construction PMI fell to 49.7 in March and is forecast to rebound to 50.4 in April when data is released at 9.30 on Thursday.
UK services PMI is the big number to watch as this is a sector that accounts for over 80% of UK economic activity.
The previous month saw the Service PMI plunge below 50 and into contractionary territory in March, falling to 48.9, but data out on Friday at 9.30 is expected to show a rebound to 50.4 in April. If it disappoints the Pound could suffer.
Brexit Impasse Continues
Brexit could also still be a driver of the Pound in the week ahead. Talks between the government and the opposition Labour party have not reportedly made much progress. At the same time pressure is building on the Prime Minister, Theresa May, to resign. If she does go, the Pound will weaken.
On the other hand, the announcement of a joint deal with Labour could lead the way to a stronger Pound. Yet this seems unlikely given the UK’s adversarial political system which does not favour bi-partisanship.
There seems little incentive for Labour to help the Conservatives out of their current self-destructive, death-spin over Europe. If anything there is probably more chance of greater uncertainty in the short-term, not less, as Corbyn is more likely to bide his time and watch the Conservatives be their worst enemy than help Theresa May out of her current deadlock.
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