Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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FX Chart Highlights: NZD weakness awaits confirmation, EURUSD dives
John J. Hardy
Chief Macro Strategist
Summary: The US dollar is broadly bid here, with implications for EURUSD traders in particularly on a weak close today. Tactically, NZD crosses face an important test as the bearish trend confirmation for the kiwi is increasingly in evidence ahead of the important Q3 NZ CPI release later today.
A few highlighted charts where important technical events are unfolding.
EURUSD – a reversal?
EURUSD is in retreat after the recent rally never saw the pair fully retracing the full extent of the prior wave lower, and never seriously threatening the critical 1.1110 area first approached all the way back in April of this year. The near-term pressure appears to be for a retest of the lows if the tactical and psychological pivot area of 1.1000 fails on today’s close.
NZDUSD – awaiting confirmation
NZDUSD performed a smart reversal after Friday’s attempt at an upside break, providing a fresh hook for new bearish positions, and we await the potential for further follow through lower on the generally strong USD picture, but possibly on any data misses from New Zealand, with the important NZ Q3 CPI data point up tonight. Note that the lower line is the major post-global financial crisis low from 2015 for the pair.
AUDNZD – ditto
As with our discussion of NZDUSD above, we have kiwi weakness again in evidence here after the recent consolidation was rather shallow and never took a full look lower toward the 200-day moving average, so far an encouraging sign for secular AUDNZD bulls. We are awaiting further confirmation of the tactical turning point back higher (or rejection of that notion) over tonight’s New Zealand Q3 CPI release. A particularly weak CPI data point could move forward the market’s anticipation of RBNZ easing and drive a follow-up rally toward 1.1000 and higher.
EURNOK – pressuring to the upside again.
EURNOK is eyeing its highest close for the cycle as weak oil prices weigh on NOK - a real squeeze could be afoot to points far north if both a) the Brent crude price can’t take a stand ahead of 50 dollars and b) global risk sentiment rolls over again for any reason – for example on US-China trade talks failing to progress. The key driver could be the psychological separation from the assumed general cap of the round level of 10.00, which could force short volatility players to cover and insufficiently hedged participants to play catch-up with the move.
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