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NZD/USD continued the free-fall, almost erasing all the gains seen early in the year.Retail sales, PPI and the G8 meetings are the major market-movers this week. Here’s an  outlook  for the events in New  Zealand, and an updated technical analysis for NZD/USD. Last week, RBNZ Financial Stability Report was released stating that NZ financial system remains vulnerable to global instability. The EU debt crisis remains a downside risk with renewed hardships which may lead to further global instability significant economic and financial implications. The global slowdown may lead to a sharp deterioration in New Zealand’s terms of trade impairing its growth prospects.

Updates: Core Retail Sales plunged by 2.5%, the worst reading in over five years. Retail Sales did not fare much better,   dropping by 1.5%, well below the market forcast of -0.7%. The kiwi continues to drop, and was trading at 0.7776, as there are fears that the ongoing crisis in Greece could lead to that country’s exit from the euro. The New Zealand dollar is losing ground, as NZD/USD was trading at 0.7756. The kiwi continues to slump, as investors react to the troubles in Greece, and  are flocking to safe haven currencies.  NZD/USD was trading at 0.7655. PPI Input and PPI Output will be released later on Wednesday. PPI Input increased by 0.3%. This was a lower figure than the previous month, but well above the market forecast of 0.0%. PPI Output posted a reading of -0.1%, disappointing the markets, which had predicted a slight increase of 0.1%.

NZD/USD  daily chart with support and resistance lines on it. Click to enlarge:NZD/USD Chart May 14 18 2012

  1. Retail sales: Sunday, 22:45. Retail sales volumes increased more than predicted in the fourth quarter of 2011, gaining 2.2%, amid increased spending during the Rugby World Cup. This increase followed another nice gain of 2.4% in the third quarter which reflected spending related to the Rugby World Cup event in September and October. Core sales also surprised with a 2.9% climb following 2.6% increase in the third quarter while economists predicted a smaller gain of 1.1%. However these encouraging figures were a one time event, since NZ economy is not doing so well amid high unemployment, lowering confidence. Retail sales is expected to drop 0.4% while Core sales is expected to gain 0.3%.
  2. PPI Input  / Output: Wednesday, 22:45. Prices for raw materials and services used by New Zealand producers continued to increase in the fourth quarter of 2011 rising 0.5% from 0.6% in the third quarter, while output prices increased a modest 0.1% following 0.2% gain in the third quarter indicating a rough period for manufacturers and lower inflation. PPI Input  is expected to remain flat while PPI output is expected to rise 0.2%.
  3. G8 Meetings: Fri.-Sat. President Obama will host the 2012 G8 SummitatCamp David from May 18-19.  The Group of Eight (G8) is a forum comprised of the eight of the world’s most industrialized nations, aimed discuss key topics and provide solutions for global issues. The G8 includesCanada,France,Germany,Italy,Japan,Russia, theUnited Kingdom and theUnited States. Russian Prime Minister Dmitry Medvedev will representRussia at the G8 summit instead of PresidentVladimir Putin who is required to finalize appointments to his cabinet inRussia.

* All times are GMT. NZD/USD  Technical  Analysis NZD/USD started the week with a drop to support at 0.79 (discussed previously). After losing this line, the pair found support only at 0.7810 before closing at 0.7823. Technical lines, from top to bottom:

The 0.84 line separated ranges in August 2011, and earlier served as support when the kiwi traded higher. While this line was hurt, it still serves as a serious cap. 0.8320 capped an attempt for a surge in April 2012 and is now of stronger importance.

0.8290 capped the pair in a stubborn manner during March 2012, and set the pair falling. 0.8264 capped the pair as a double top in both March and April 2012 and proved to be quite strong.

0.8190 is the next line, after switching roles easily from support to resistance. It capped the pair in March 2012 and also provided some support in January. The round number of 0.81 now switches to resistance after proving itself as a cushion at the end of April 2012.

0.8060 was resistance in October and support beforehand.. It was also tested in January and in March, is much weaker now after only temporarily stopping the fall. The round number of 0.80 managed to cap the pair in November and remains of high importance, especially due to its psychological importance.

Another round number, 0.79, is key resistance, after being a very distinct line separating ranges. 0.7810 was a double bottom in May 2012 and also served as resistance at the end of 2011, and is now critical support.

0.7773 was the bottom border of a range at the beginning of 2012, and also in December.  0.77 provided support in December and is now minor support. 0.7637 was a swing low in September and provided its strength in December as a swing low. It is a still strong, after capping a recovery attempt in December.

0.7550 now has a stronger role after working as a very distinct line separating ranges.  It had a similar role back in January. Below, 0.7470 is significant support after working as support at the end of 2011.

0.7370, which was the trough in December is low support before the 0.71 swing low of 2011.

I am bearish on NZD/USD

There’s no respite for the kiwi, especially as the situation in Europe deteriorates. This joins weak job figures for Q1, that will have a negative impact on NZD for a long time. Further reading: