NZD/USD: enough is enough already, or there could more to go, 0.7030 target

• NZD/USD: rallies like a ball under water, targeting 0.70 the figure with eyes towards 0.7030 resistance.
• NZD/USD: strength could be an opportunity to sell into.

NZD/USD has continued in its recovery from the 0.6882 lows, (0.6883 was 12-day low in Asia on the back of NZD/JPY selling), and has reached a high of 0.6998 on comeback Wednesday where risk appetite bounced back following a calmer environment surrounding Italian politics where nerves have lightened up.  

During the European session, the PM-designate, Carlo Cottarelli, former IMF economist who was chosen after the failure of populist parties to get their cabinet approved,  spoke out explaining that discussions to form an interim government have been moving ahead. This tempered down the bears and gave rise to a reversal in yields. Italy’s, Spain’s and Portugal’s yields dropped and the spread between DE and BTP narrowed.

“The better tone to risk saw safe-haven demand for Treasuries ease and that is likely to flow through to some steepening pressure for our curve on the open, although with our long-end likely to outperform,”

-analysts at ANZ explained.  

In the 10 year yields have seen a reversal of yesterday’s flight to safety as follows:

• Spain 1.551%, down 7 bps  
• Italy 2.949%, down 21 bps  
• Portugal 2.067%, -12.7 bps
• Germany 0.373%, up 11. 4 bps
• France 0.704%, up 4.8 bps
• UK 1.254%, up 5. 7 bps

At the same time, US Q1 GDP second reading q/q annualized arrived as +2.2% vs +2.3% expected and the ADP US May employment was also a miss at +178K vs the +190K expected.  For the day ahead, NY ANZ Business Outlook and Chinese PMI data  along with capital expenditure and credit data in Australia are data risks.

“The kiwi displayed its ‘beach ball underwater’ properties overnight as the sub-0.69 level again proved too much of an ask. It tested 0.70 overnight and it looks like it could face further tests in the near-term, although our overall views are unchanged and any strength is something we’d see as an opportunity to sell into,”

– the at analysts at ANZ argued.

NZD/USD levels

Key support is located at 0.6880 while resistance is located at 0.7000, NZD/USD remains in the vicinity of the 200-month moving average resistance at 0.6980 and weekly technicals remain bearish. RSIs are biased to the downside although turning slightly higher with this strong short squeeze through the21-D SMA at 0.6946. A break of the 200-M SMA opens 0.7000 and then 0.7030, Early 2017 Dec tops. Below 0.6850, 0.6780 comes as next downside target meeting the lows of mid-Nov 2017.