Sterling is set to have an eventful couple of sessions with a slew of top tier events today, while Kiwi could see a spike in vol right around the corner, making the trendline break on GBP/NZD the one to watch for the session.
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Fresh Market Headlines & Economic data:
- U.S. Home sales fell in April despite a big drop in mortgage rates
- Theresa May to reveal new Brexit deal
- Brexit uncertainty sees stockpiling race to post-financial crisis peak – CBI
- Euro area consumer confidence picked up by 0.8 points to -6.5, above the respective long-term average of −10.7
- Cut to cash rate likely ‘appropriate’: RBA Meeting Minutes
- Oil up on escalating US-Iran tensions, but trade war worries cap gains
- Trade war trashes global growth as OECD slashes forecasts
Upcoming Potential Catalysts on the Forex Calendar:
- Australia leading index at 3:30 pm GMT
- U.K. Prime Minister May speech on Brexit at 4:00 pm GMT
- Fed Rosengren speaks at 5:00 pm GMT
- New Zealand retail sales at 11:45 pm GMT
- Japan core machinery orders & trade balance at 12:50 am GMT (May 22)
- Australia consrtuction work done at 2:30 am GMT (May 22)
- U.K. public finances, CPI & PPI at 9:30 am GMT (May 22)
- Canada retail sales at 1:30 pm GMT (May 22)
What to Watch: GBP/NZD
Yesterday, my main man Cyclopip pointed out that GBP/NZD was testing a major area of interest, the psychological level of 1.9500 as a potential area of support. Well, so far it looks like bulls have taken back enough control to break the falling ‘highs’ pattern, a scenario that could draw in more buyers in the short-term.
But we should pump the brakes just a bit before going all in on this upside break given that we’ll see some potentially big time catalysts for the British pound, most notably British PM May’s speech later today that may introduce a new Brexit deal. Of course, there is reason to be skeptical given the past versions being virtually the same, but if there is enough change to push a deal through, then this upside break in Sterling could be for real and have some legs to it. So for the bulls who thinks this scenario will play out, it’s probably a good idea to wait for that event to play out later today before entering. But if you’re the aggressive type, there’s nothing wrong with starting with a nibbler position and a wide stop if you fear missing out.
For the bears on Sterling, a failure to bring enough change to push a deal through is likely to add pressure to the British pound, and a break lower of the major psychological area around 1.9500 should definitely be a signal to look for a short play in the short-term.
Also remember that NZ retail sales is coming later in the Asia session, and U.K. inflation events in the next London session, so there could be other opportunities to play the bigger Brexit theme. This means you don’t have to put all of your eggs in the basket right away; look for opportunities to scale in and out of trades, or reverse altogether if the story changes. With big time catalysts, it’s a good idea to be flexible until the market confirms you have the right bias.