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  • NZD/USD has been capped on the upside following an initial bid on impressive retail sales.
  • Bears testing key support line with eyes on a break to 0.6850 as US dollar stablises.

The Kiwi started out the week in Asia on the bid following data that proved retail spending was much stronger than expected in the December quarter. The data adds some upside risk to  forecasts for Q4 GDP growth.

The data arrived as follows:

  • Nominal retail sales: +1.8% qtr, +4.5% yr
  • Q4 real retail sales (volumes): +1.7% (Prev: +0.3%, Westpac f/c: +0.7%, market f/c: +0.5%)
  • Q4 real core sales (volumes): +2.0% (Prev: +0.7%)
  • Annual change – total real retail spending (volumes): +3.5% % (Prev: +2.7%)

However, traders have faded the upside and analysts at Westpac argued that “we’re still left with a picture of an economy that lost some steam over the back half of last year, and growth still looks set to undershoot the RBNZ’s forecasts for 0.8% GDP growth over the quarter.”

Six days of intensive trade talks and sentiment is bullish – supporting CNH and risk-FX

Elsewhere, the focus stays with trade and upbeat sentiment has resulted in risk-on markets. We had six days of intensive trade discussions that finalised over the weekend with President Donald Trump announcing that the US will delay imposing further trade tariffs on Chinese goods. Traders are of the mind that the US and China appear to have made significant progress and subsequently, we saw a strong rally in Asia with the CNH firming to the highest levels since the summer of 2018.  China’s mainland CSI 300 bounced +5.95% to 3,729 back to June 2018 highs, its biggest rise since July 2015.  
A global risk-on sentiment among G10 currencies is emerging and it will be key to monitor the Chinese currency and the H&S formation in the DXY – The neckline is 96.60 and so long as the DXY remains below it, the bird can stay better bid.  

On the other hand, from a fundamental standpoint, it is difficult to imagine a sustainable bid in the Chinese yuan considering the slowdown that the Chinese economy is facing and subsequent deleveraging from the Chinese authorities that should support a weaker outlook for the yuan over the medium to longer term. However, so long as the US maintains a “stand down” posture on the trade spat, an extension of the deadline will likely be welcomed by both the AUD and NZD and should remain supported on a tactical basis. On the other hand, until dollar peers

NZD/USD levels  

0.6880 is a line in the sand. The bird broke this level in London trade and the pair tested the 0.69 handle before price formed a descending triangle on the 5 minute sticks, albeit at the end of an uptrend – Instead of breaking to the upside, in a continuation pattern, the price has broken out of the triangle back to the 0.6880 level where price is holding. This is also where the trendline support comes in which has been tested on two hourly candles to the downside – On a break of this support, the 21-hr SMA at 0.6870 is the last defence for 0.6850 and confluence of the 23.6% Fibo of the Feb 12th to swing recent high. 0.6810 is the 50% Fibo of the same range and 19th Feb fractal swing lows guarding S1 at 0.6784. 21 Feb low at 0.6757 and S2 confluence with 12th Feb swing lows at 0.6722/23 come as next support.  On the upside, NZD/USD has been struggling at the 50% Fibo of the 2018 downtrend to recent swing lows – capped their twice around 0.6920/30. A third attempt could be enough to wipe out stale shorts and trigger a stop run that will expose the 61.8% Fibo target at the 0.7050 level – highs last traded in June 2018.