Forex Market: NZD/USD trading outlook for January 4th

Thursday’s trade saw NZD/USD within the range of 0.6823-0.6865. The pair closed at 0.6829, shedding 0.19% on a daily basis, while extending the loss from the prior trading day. The daily low was a higher-low test of the low from December 28th. In weekly terms, NZD/USD lost 0.10% during the current week to mark its first drop in the past three weeks. The pair has advanced 3.72% during December, following a 2.85% slump in the preceding month.

On Monday (January 4th) NZD/USD trading may be influenced by a number of macroeconomic reports as listed below.

Fundamentals

United States

Manufacturing PMI by Markit – final reading

The final estimate of the Manufacturing Purchasing Managers Index for December probably confirmed the flash estimate of 51.3, which was reported on December 16th. If expectations were met, this would be the lowest PMI reading since October 2012, when the final gauge was reported at 51.0. In November the final seasonally adjusted PMI stood at 52.8, inching up from a preliminary value of 52.6.

According to preliminary data by Markit, ”Manufacturing production increased only moderately in December, with the rate of expansion the weakest for just over two years. Softer output growth was widely linked to a weaker-than-expected upturn in new business volumes and a corresponding drop in capacity pressures. Reflecting this, latest data highlighted a decrease in backlogs of work for the second month running, and the pace of decline was the fastest since late-2012.”

”Manufacturers were more cautious about their purchasing activity and inventory volumes in December. Input buying expanded at the slowest pace for just over two years, while pre-production stocks decreased for the first time since June 2014. Finished goods inventories rose marginally in December, but some manufacturers linked the upturn to weaker-than-expected sales at the end of the year”, Markit stated.

Values above the key level of 50.0 indicate optimism (expanding activity). In case the final PMI for December confirmed or came below the preliminary reading, this would cause a moderate bearish impact on the US dollar. The final reading is due out at 14:45 GMT.

Manufacturing PMI by the ISM

US gauge for manufacturing sector activity probably remained in the zone of contraction for a second consecutive month in December, coming in at 49.0, according to expectations, up from 48.6 in November. The latter has been the lowest PMI reading since June 2009, when the barometer was reported at a level of 44.8.

The New Orders Index plunged to 48.9 in November from 52.9 in October. The sub-gauge of production was reported at 49.2, falling from 52.9 in October. The index of employment rose to a value of 51.3 in November from 47.6 in the preceding month. The gauge of prices was at 35.5 in November, down from 39.0 in October, which suggested lower prices of raw materials for a 13th month in a row. In November, 5 manufacturing industries reported growth, 10 reported contraction and 3 registered no change in conditions, according to the report by the Institute for Supply Management (ISM).

In case the PMI improved more than anticipated in December, this would have a strong bullish effect on the greenback. The Institute for Supply Management (ISM) is to release the official reading at 15:00 GMT.

Correlation with other Majors

Taking into account the week ended on December 31st and the daily closing levels of the currency pairs involved, we come to the following conclusions in regard to the strength of relationship:

NZD/USD to USD/JPY (0.5605, or strong)
NZD/USD to GBP/USD (0.4581, or moderate)
NZD/USD to EUR/USD (0.4215, or moderate)
NZD/USD to AUD/USD (0.3258, or moderate)
NZD/USD to USD/CHF (-0.4383, or moderate)
NZD/USD to USD/CAD (-0.0917, or very weak)

1. During the examined period NZD/USD moved strongly in one and the same direction with USD/JPY.

2. NZD/USD moved almost independently compared to USD/CAD during the week.

3. NZD/USD moved to a moderate extent in one and the same direction with GBP/USD, EUR/USD and AUD/USD during the period in question, while moving to a moderate extent in the opposite direction compared to USD/CHF.

Daily and Weekly Pivot Levels

By employing the traditional calculation method, the Monday pivot levels for NZD/USD are presented as follows:

Central Pivot Point – 0.6839
R1 – 0.6855
R2 – 0.6881
R3 – 0.6897

S1 – 0.6813
S2 – 0.6797
S3 – 0.6771

By using the traditional method of calculation again, the weekly pivot levels for NZD/USD are presented as follows:

Central Pivot Point – 0.6847
R1 – 0.6874
R2 – 0.6918
R3 – 0.6945

S1 – 0.6803
S2 – 0.6776
S3 – 0.6732