Market Needs to Return to a More Neutral Range

Eva Chen

Forex

Central Bank

Summary:

New Zealand's Q2 GDP data won't prevent a rate cut, but the trajectory remains steep.

SELL EURNZD

Close Time

CLOSED

1.77255

Entry Price

1.74160

1.79720

2.02930 +0.00261 +0.13%

110.2

Pips

Profit

1.74160

1.76153

Exit Price

1.77255

Entry Price

1.79720

Fundamentals

New Zealand's economy in the second quarter did not exhibit the level of weakness anticipated by the market; however, the overall momentum remains sluggish. The Reserve Bank of New Zealand (RBNZ) continues to plan for further interest rate cuts, which will not alter the outlook for monetary policy. Notably, the GDP contracted by 0.2% in the second quarter, better than the market's concerns of a 0.4% decline, which may dampen the RBNZ's inclination to implement a 50 basis point cut in the near term.

The market currently perceives that New Zealand's latest economic report demonstrates that restrictive monetary policy has inflicted sufficient damage to alleviate inflationary pressures. The RBNZ is responding, albeit belatedly. A rate cut in October appears increasingly certain, with traders advocating for a reduction of 50 basis points, followed by an additional cut of 50 basis points in November. The official cash rate needs to decrease at a pace of up to 300 basis points.

We believe that the RBNZ will implement a 25 basis point cut at each subsequent meeting, reaching a terminal rate of 3.25% by August 2025. While there is a possibility that the RBNZ may adjust its pace to 50 basis points at some point, the second quarter data was not as weak as the RBNZ had anticipated, thereby diminishing the risk of such an occurrence at the upcoming policy meeting in October.

Market Needs to Return to a More Neutral Range_1

Technical Analysis

Driven by the anticipation of another interest rate cut by the RBNZ, the New Zealand dollar continues its exciting upward momentum within its range. The EURNZD reached a two-month low of 1.7608 on Wednesday before experiencing a slight recovery.

Given the steep trajectory of the RBNZ's anticipated rate cuts in October and the relatively balanced market momentum, short-term quotes may gravitate closer to the lower end of the range; subsequently, the market may once again enter a phase of fluctuation.

On the upside, a decisive close above 1.7886 could trigger a new bullish wave, with the upward inclination favoring a mid-term bullish extension.

On the downside, a break of the critical support level at 1.7590 would be an early indication of the market returning to the range's lower boundary. If it declines further, the 1.7382 level will represent a return to demand within the supply zone; however, achieving this demand may prove challenging, as the overall consolidation within the market range remains robust.

Overall, the EURNZD is situated below the mid-point of its range trading, but market momentum remains fairly balanced without a clearer directional guidance, predominantly exhibiting fluctuating trading structures. It is recommended to buy low and sell high in a wide range.

Trading Recommendations

Trading Direction: Sell

Entry Price: 1.7765

Target Price: 1.7416

Stop Loss: 1.7972

Deadline: October 10, 2024 23:55:00

Support: 1.7610, 1.7590, 1.7485

Resistance: 1.7790, 1.7886, 1.7946

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