The US dollar is easing back a smidge in early US session trade, driven primarily by buying pressure in GBPUSD in the wake of slightly more bullish BOE minutes. As we noted yesterday, the BOE’s current quandary is to weigh how much of the ongoing slowdown in inflation is driven by transitory factors vs. more stubborn, longer-term deflationary forces, and based on today’s minutes, the committee sees the former explanation as more plausible. While all nine members voted to keep interest rates unchanged, two members stated their decision was “finely balanced,” suggesting that they may soon support a rate hike. In addition, the members also stuck an optimistic tone on the Eurozone, stating that “a succession of firmer data suggested that growth in the euro area economy was picking up.” The upbeat outlook drove GBPUSD through key resistance at 1.50, and if rates can close today above that level, further gains are likely.
The corresponding tick lower in the greenback has had a spillover effect on NZDUSD. The kiwi is edging above .7700 as of writing, and more importantly, has now held above previous horizontal resistance at .7610 and the 100-day moving average for an entire week. The sustained breakout suggests that rates may rally further in the coming days, and the secondary indicators support this view, with the MACD trending higher above its signal line and the “0” level, while the daily RSI is at its highest level since last July.
From a broader perspective, NZDUSD formed a clear double bottom pattern in Q1, and with rates now conclusively above the pattern’s neckline, a bullish continuation is likely. Based on the pattern’s 425-pip height, the measured move target comes in a little above key psychological resistance at .8000, and bulls may look to target that area as we move into May. Along the way, buyers will also have to contend with the YTD high at .7900. On the other hand, only a break below previous-resistance-turned-support and the 100-day MA around .7600 would erase the medium-term bullish bias.