The Pound to New Zealand Dollar exchange rate has declined in a long-term trend but over recent months it has started going sideways instead.
At the time of writing the pair is quoted at 1.7612.
The question now is in which direction this side-ways-orientated period of consolidation will break – will it go higher or a break lower into fresh all-time lows.
This sideways market has started to possibly trace the outline of a triangle pattern on the weekly chart, with bearish connotations.
Triangles normally have five waves sometimes more, but a minimum of five waves.
This triangle is currently completing its ‘c’ wave, which looks like it has finished after touching the upper border at around the 1.7680 level.
The fact the pair is in a dominant long-term downtrend indicates a higher probability that the triangle will break bearishly rather than bullishly.
Triangles are often the penultimate move within a bigger trend.
This could mean that there may only be one more wave of selling after the triangle before the broader downtrend reverses.
A break below the 1.6796 lows would confirm a breakout towards a target at roughly 1.6000, calculated from extrapolating the height of the triangle at its widest point down from the level of the break; the level is also targeted because it is a major round number and therefore is expected to attract disproportionate demand.
The rare Death Cross (circled) formed by the 50-week moving average crossing below the 200-week moving average is a highly bearish sign, further increasing the probabilities of more downside in the future.
The MACD is rising, however, signalling relatively strong upside momentum and a more bullish trajectory for the pair.
One of the main releases for the New Zealand Dollar in the week ahead is the preliminary estimate for fourth quarter GDP data.
Market expectations are for a 0.7% rise from 1.1% previously (Q3), although the consensus may be a little pessimistic given Trading Economics forecast the result to be slightly higher at 0.8%, whilst TD Securities forecast 0.9%.
“Construction, business investment and consumption contribute to a strong domestic economy and combined with a drag from trade (-0.5ppts) leaves GDP at +0.9% q/q. Annual GDP growth at 3.4% y/y is well beyond trend growth (RBNZ estimate 2.7%). Mkt range +0.4% to 0.9%, RBNZ +1.0%. A shock will be +0.5% or lower,” said TD Securities.
Bank of England, Employment Data Dominate Agenda for Sterling
Direction in Pound Sterling will largely rest with the outcome of the monthly Bank of England (BoE) meeting due to be held on March 16 at 12.00 GMT.
Although no-change in policy is expected, the minutes which are released at the same time as the decision, will show how members deliberated on monetary policy issues.
Whilst some commentators had seen the BoE moving towards a tighter monetary policy stance - i.e. looking to raise interest rates, something that is supportive of Sterling - but this has probably changed since the spring Budget statement.
There is now a heightened possibility that the BoE will have to keep monetary policy expansive and interest rates low due the Chancellor’s fiscally tight budget, in which he gave away only 3bn in stimulus, according to Jonathan Loynes at Capital Economics.
“Fiscal policy is still set to provide a significant drag on GDP growth over the next few years – very similar to that planned in the Autumn Statement. As such, the onus will remain on monetary policy to support the economy,” says Loynes in a note seen by Pound Sterling Live.
Such a policy will keep the pressure on Sterling, particularly versus the Dollar where interest rates are contrastingly set to rise.
On the ‘hard’ data front, the main release for Sterling is labour market data on Wednesday March 15, although the unemployment rate is not expected to change from the current 4.8%.
Average Earnings are forecast to slip to 2.4% from 2.6% previously and the Claimant Count to go down by 5.0k from -42.5k previously.
Any improvement on those figures could give the Pound to Euro exchange rate a mid-week fillip.