Weekly Recap and Outlook for NZDUSD - 7/26/2010

Written by ForexTraders.com on July 26, 2010 at 4:38 PM ET

NZDUSD showed considerable strength last week as renewed risk appetite drove the rate higher. The rate started on a soft note with the pair gapping down on the Monday opening. NZDUSD then made its weekly low of 0.7027 before trading higher in the absence of any major economic releases out of New Zealand. The rate then started rallying sharply on Tuesday.

On Wednesday, the rally took a rest after New Zealand Credit Card Spending showed an increase of 4.5% year on year versus a previous reading of 3.4%. In addition, New Zealand Visitor Arrivals showed an increase of only 0.3% month on month versus a previous reading of a 1.1% increase revised upward from 1.0%.

Thursday saw NZDUSD begin rallying sharply after comments by U.S. Fed Chairman Bernanke cautioned on the "unusual uncertainty" in the U.S. economy softened the Greenback, and risk appetite began propelling the Kiwi skyward. Friday saw the rate make its weekly high of 0.7288 before selling off somewhat to close at 0.7269, gaining an impressive 2.2% overall on the week.

Fundamental Outlook for NZDUSD

The primary market-moving economic data releases and policymaker speeches scheduled for this week in New Zealand and the United States are as follows:

New Zealand:

The upcoming week of economic data due for release in New Zealand is again quite quiet, but it does feature the important RBNZ Rate Decision on Thursday in which a rate hike is widely anticipated.

Monday and Tuesday have nothing notable scheduled for release, so Wednesday starts the week out with NBNZ Business Confidence (last 40.2).

Thursday offers the highlighted Official Cash Rate Announcement by the RBNZ in which the central bank is widely expected to hike its benchmark interest rate by 25 bps to 3.00%.

Also due out Thursday is the associated RBNZ Rate Statement that should give some insight into the decision, as well as the New Zealand Trade Balance (369M).

Friday ends the week with Building Consents (-9.6% m/m).

United States:

The coming week of economic data releases for the United States is also moderately active like the previous week, and offers some interesting data for forex traders on the U.S. economy. The U.S. economic calendar features Friday's key Advance GDP data.

The week commences on Monday with just New Home Sales (317K) due out. That is followed on Tuesday with the S&P/CS Composite-20 HPI (3.8% y/y), as well as the important CB Consumer Confidence index (51.5) and the Richmond Manufacturing Index (20).

Wednesday offers Core Durable Goods Orders (0.6% m/m), plus Durable Goods Orders (0.9% m/m) and the closely watched Fed Beige Book.

Thursday only has Initial Jobless Claims (456K) out in terms of notable releases, and Friday closes the week with plenty of action.

Releases on Friday include the highlighted Advance GDP number (2.5% q/q), plus the related Advance GDP Price Index (1.1% q/q) and the Employment Cost Index (0.5% q/q). Also out on Friday are the Chicago PMI (56.1), the Revised University of Michigan Consumer Sentiment survey (67.5) and University of Michigan Inflation Expectations (last 2.9%).

Technical Outlook for NZDUSD

On the technical front, despite gapping lower at the open, NZDUSD rallied to fill the gap and recovered from its 0.7027 low seen early last week to trade as high as 0.7288, just under its previous recent 0.7302 high. The rate also again peaked just shy of the 100% retracement to the significant 0.7324 high last seen on April 30th. The rate went on to close the week on a firm note at 0.7269, up an overall 2.2% from the previous week's close.

The rate's short term up trend seen since the 0.6560 low of May 25th continues to support price action above a lower rising trend line now drawn at 0.6986. This overall rising price pattern is supported by a similar trend in the key 14-day RSI indicator which is currently showing a reading in the upper part of neutral territory at 62. A further rally beyond 0.7288 should now exceed 66 on the RSI to confirm the uptrend in NZDUSD.

Furthermore, NZDUSD closed last week above the level of its 200-day Moving Average that now comes in at 0.7112. The indicator is now very slightly downward sloping after previously being positively sloping. This gives an overall neutral medium term outlook for the pair.

With the rate having closed on Friday at 0.7269, support for NZDUSD is now seen on the charts at 0.7225, 0.7095 and 0.7027, just ahead of the psychological 0.7000 level. Resistance shows up in the 0.7288/0.7324 region, at 0.7440 and at 0.7522.

Although this technical picture indicates a rather neutral medium term outlook for the pair, the shorter term picture looks correctively bullish for NZDUSD. This view will be confirmed if the rate manages to exceed strong resistance clustered around the levels of the 0.7302 recent high and the longer term 0.7324 high. Otherwise, consider selling rallies peaking below those resistance levels, and covering shorts ahead of rising trend line support now at 0.6986.

Figure 1: Daily candlestick chart of NZDUSD showing its 200-day MA in red, Bollinger Bands in green, Fibonacci Retracement levels in royal blue, Trend Lines in purple and the 14-day RSI in the indicator box in pale blue.