Today I will start my analysis with NZD, which is in focus because of the national elections in New Zealand. The last poll suggests that the National Party has the lead over the Labour Party with 47%. Analysts from Citibank cite a report that says there’s a possibility, in case of a victory, for the Labour Party to require the RBNZ to consider job market conditions when deciding over monetary policy. Labour Party is in favor of implementing policies to limit immigration. In such a situation, NZD may be restrained. RBNZ is expected to keep rates on hold until the end of the year.

Analysts from Bank of New Zealand suggest that if the FED goes on with rate normalization — meaning a rate hike in December and more hikes in 2018 — the market will be seen to under-price the change of FED hikes through the end of the year.

Based on their point of view, if they are right, the NZD could move under 0.70 next year and, if they are wrong, then easy US monetary conditions will support higher levels of risk appetite and a stronger NZD than expected.

Taking a look at NZD/USD on MN chart we see a possibility for a correction until 0.7705 even if it seems less likely until the end of 2017.

But it looks like we will have to wait a long time until NZD/USD reaches that level. Taking a closer look we have the H1 chart which to me is neutral. I have a scenario for a possible move, as shown in the image below, and if that move happens, I will look for a sell limit.

If NZD/USD doesn’t cross 0.7320 and then goes back to 0.7220, I will look for a sell limit at 0.7290. If NZD/USD reach 0.7320 and cross over 0.7345 I will probably look for a buying opportunity. Updates to come. I will wait for the first scenario and then take an action. Now for me NZD/USD is neutral.

If NZD/USD instead reaches 0.7320 and crosses over 0.7345, I will probably look for a buying opportunity. Updates to come. I will wait for the first scenario and then take action. To me, NZD/USD looks neutral right now.

Happy pips!

Monday 18 September – Eurozone CPI (yoy) came as expected 1,5%;
Tuesday 19 September for EUR – Germany Zew Survey expectation 32.4;
Wednesday 20 September for USD – Federal Open Market Committee Interest Rate decision;
Thursday 21 September for JPY – Bank of Japan Interest rate decision.

It’s no doubt that spotlight is on FOMC and BOJ. The FOMC is expected to keep rates on hold and to announce the tapering of its 4,5 trillion USD balance sheet. As always, the FED is preparing the market and makes its decisions predictable.

Analysts expect only one hike this year, most likely in December, and two hikes next year. The market will wait to see if any modifications occur on “dot plot.” Taking into consideration the rumors of no further rate rise this year, this will be a dovish signal by the markets.

For the BOJ things are simple because it is expected to leave its Policy Balance Rate and the 10-year Japanese government bond yield target unchanged, at -0.1% and around 0%, respectively. Personally, I don’t exclude a surprise in changing the target amount of Japanese government bond buying coming from the BOJ, even if it’s less likely.

GBP: BOE kept the rate on hold yesterday and MPC voted 7 – 2 in favor as expected. Some analysts say the Official Bank Rate might rise this year due to concerns regarding inflation pressure. BOE Governor Mark Carney said in the past that the interest rate will remain unchanged for a long period of time, suggesting we might see no change this year. Since then conditions have changed and Mark Carney said in his post-decision press conference that there is a possibility for a rate hike. Some analysts say that November could be a good moment for it, although Carney noted that a modest adjustment is in discussion and that the BOE will take a decision based on future data.

Brexit concerns are still present but don’t impact the market too hard. Theresa May is expected to deliver a speech of high importance next week on September 22 in Florence. There are rumors that she will go ahead with a soft Brexit.

SNB: CHF is still overvalued and the bank will intervene if necessary. The interest rate was left unchanged.

EUR: ECB Weidmann said that QE is an emergency instrument to ward off deflation and deflation is largely gone. He also noted that ECB should not miss the right moment for normalization and that monetary policy will remain exceptionally easy even after QE will end.

USD seems to weaken even if August CPI was above expectation. After the latest data, there is a possibility for a rate hike in December. According to Bloomberg, WIRP expectations rose from 38,9% to 43,4%. FED is more concerned with inflation in contrast to Trump administration which is concerned about economic growth.

AUD is still strong against the USD. Copper price has weakened lately but rebounded this morning.

NZD is influenced at the moment by political factors that will last until September 23 when general elections are scheduled.