· The dollar traded higher against almost all of its G10 counterparts during the European morning Friday, ranging from 0.15% against GBP to 0.45% vs NZD. The greenback was slightly lower against NOK, while it remained stable vs JPY.
· The greenback pulled away from a seven-week low against a basket of currencies, as the upbeat US inflation data revived hopes for a December Fed rate hike. The probability for a December liftoff increased from around 26% on Wednesday to around 30% today. The focus now shifts on US industrial production for September to be released later in the day, for any signs of improvement in the economic data. In such case, the dollar could continue to regain some of its recent losses.
· NZD/USD fell after it found resistance twice around 0.6895 (R3) and broke below the prior support now turned into resistance of 0.6810 (R1). During the European midday, the pair is headed for a test of the 0.6760 (S1) support zone. A break below that level is needed to set the stage for further declines. NZD rallied the most against the back of a weak USD in the recent days and as investors scaled back expectations for the RBNZ to cut further rates from October to December. If the economic data in New Zealand continue to improve and that of US to soften, we could see the pair breaking above 0.6900. Our short-term momentum signs however support the case for the pullback to continue. The RSI found resistance above its 70 line and declined, while the MACD has topped, crossed below its trigger line and is pointing down. I also detect negative divergence between the RSI and the price action, which supports the scenario for further declines.
· Support: 0.6760 (S1), 0.6700 (S2), 0.6665 (S3)
· Resistance: 0.6810 (R1), 0.6850 (R2), 0.6895 (R3)