May’s preliminary PMIs and RBNZ’s interest rate decision eyed

Overall, the greenback seems to have stabilized against its counterparts for now as on a fundamental level market worries tend to focus on the US debt ceiling negotiations and the possibility of the US defaulting. It should be noted that yesterday’s round of negotiations between US President Biden and House Speaker McCarthy (Republican) ended with a dash of optimism yet without a deal, which tends to prolong the market’s worries and in turn may weigh on riskier assets. EUR traders are expected to focus on the release of the preliminary PMI figures for May as market concerns for the possible adverse effects of ECB’s monetary policy tightening on the expansion of economic activity are wide. Particular focus is expected to be placed on Germany’s manufacturing sector, Eurozone’s “problem child” currently, as the sector is large and critical for Eurozone’s economy yet has been experiencing a contraction of economic activity since July last year to some degree or another but on a continuous basis. Such a contraction may be currently hindering substantial growth in the Eurozone as a whole.

EUR/USD despite our bearish expectations maintained a tight range bound motion between the 1.0855 (R1) resistance line and the 1.0695 (S1) support line. We would require though, the pair’s price action to break the downward trendline incepted since the 4^th of May before switching our bearish outlook. Should the bears take over we may see the pair breaking the 1.0695 (S1) support line and aim for the 1.0525 (S2) support level. Should the bulls be in charge, we may see the pair breaking the prementioned downward trendline but also breaking the 1.0855 (R1) resistance line and aim for the 1.1000 (R2) resistance level.   Across the world we highlight the release from New Zealand of RBNZ’s interest rate decision during tomorrow’s Asian session and the bank is marginally expected to proceed with a 25-basis points rate hike. Currently, NZD OIS implies that the market prices in a 25-basis points rate hike by 50.90% with the rest suggesting that also a 50-basis points rate hike is possible. Should the bank proceed with a mere 25-basis points rate hike, we may see Kiwi traders’ disappointment weakening NZD. Yet also considerable interest is to be placed on the accompanying statement and should it be characterised by a hawkish content we may see the Kiwi getting some support.      

NZD/USD maintained largely a sideways motion yesterday between the 0.6205 (S1) support line and the 0.6350 (R1) resistance line. We tend to maintain a bias for a sideways motion, yet note that on a fundamental level, RBNZ’s interest rate decision could alter the pair’s direction either way. Should a selling interest be expressed by the market, we may see NZD/USD breaking the 0.6205 (S1) support line with the next target for the bears being the 0.6060 (S2) support level. Should the pair find extensive buying orders along its path, we may see NZD/USD breaking the 0.6350 (R1) resistance line and aim for the 0.6465 (R2) resistance level.   

Other highlights for the day:

Today in the European session we note that we get the preliminary PMI figures of May for France, Germany, the Eurozone as a whole and the UK. On the monetary front, we note that  ECB’s Luis de Guindos, François Villeroy de Galhau and Andrea Enria are scheduled to speak. In the American session, we note the releases of Canada’s PPI rates for April and from the US we get the preliminary S&P PMI figures for May, the number of new home sales for April and May’s Richmond Fed Composite index while oil traders may be more interested in the release of the weekly API crude oil inventories figure. On the monetary front, we note that Dallas Fed President Logan and ECB policymaker Nagel are scheduled to speak. During tomorrow’s Asian session, we get New Zealand’s retail sales growth rates for Q1, yet they are expected to be overshadowed by RBNZ’s interest rate decision.

EUR/USD H4 Chart

Support: 1.0695 (S1), 1.0525 (S2), 1.0370 (S3)

Resistance: 1.0855 (R1), 1.1000 (R2), 1.1140 (R3)

NZD/USD H4 Chart

Support: 0.6205 (S1), 0.6060 (S2), 0.5950 (S3)

Resistance: 0.6350 (R1), 0.6465 (R2), 0.6565 (R3)

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