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  • NZD/USD is trading in an expanding falling channel for the sixth day. The upper edge of the channel proved a tough nut to crack on Friday, as upbeat US consumer sentiment overshadowed dismal factory output.  
  • NZIER has lowered both growth and interest rate forecast ahead of domestic GDP release, due this Wednesday. That may keep NZD under pressure today.  
  • A channel breakout, if any, ahead of the Fed could end up trapping bulls on the wrong side if the US central bank sounds less dovish than expected.  

NZD/USD is stuck in a descending broadening channel for the sixth straight day, according to 4-hour chart.  

The bulls failed to force a convincing break above the upper edge of the channel on Friday as a better-than-expected forward-looking US consumer confidence number overshadowed the weaker-than-expected  backward-looking US industrial production and manufacturing output, limiting losses in the greenback.  

The situation has not changed much in Asia, with the pair sidelined below the channel resistance, currently at 0.6851.  

Possibly capping upside at press time is the downward revision of growth forecasts by the New Zealand Institute of Economic Research (NZIER). The group expects the annual GDP to peak at 2.9 percent from the year to March 2021 before moderating to 2.5 percent in the following year. Further, interest rate forecasts have been revised down throughout the projection period.  

Notably, the downward revision has come two days ahead of the official GDP data, which is expected to show the growth rate ticked higher to 0.6 percent quarter-on-quarter in the fourth quarter of 2018 from 0.3 percent in the third quarter.  

The NZD, therefore, may remain on the defensive with upside capped by channel resistance. However, an upside break cannot be ruled out, if the risk assets pick up a strong bid. The breakout, however, could be short-lived if the US Fed sounds less hawkish-than-expected this Wednesday.  

Note that with markets pricing in a 2020 rate cut, the bar of (dovish) expectations has been set higher. So, the probability of the Fed disappointing dovish expectations is high.  

Technical Levels