GBP/NZD - 26/11/2018

Micro Analysis

26 November, 2018

For General Information only. Not Intended to Provide Trading or Investment Advice. Your Capital is at Risk.

Geopolitical and Fundamental Review

EU leaders endorse Brexit deal (November 25)

European Union leaders of the 27 states endorsed their Brexit deal with London. The 27 leaders adopted an official statement in which they also committed to take the necessary steps to ensure that the agreement can enter into force on 30 March 2019, so as to provide for an orderly withdrawal. The statement also promised an as close as possible partnership with the United Kingdom after Britain leaves on March 29, 2019. They urged the UK parliament to back the deal as well.

Prime Minister Theresa May will tell lawmakers this week they face a stark choice to either back the deal she negotiated to leave the European Union or reject it and take Britain back to square one with more division and more uncertainty. The odds look stacked against May. Her plan will face opposition from both Eurosceptic and Europhile wings within her party’s 314 lawmakers and around 313 lawmakers from opposition parties. The 10 Democratic Unionist Party Northern Irish lawmakers propping up the government said at the weekend they will vote against the deal. May needs to win a simple majority in parliament - 320 votes if all active lawmakers turn out and vote - but former whips, who have long studied parliamentary arithmetic, say the prime minister may end up needing only 305 votes if illnesses and abstentions are accounted for. A vote in the British parliament is expected to take place just before the next EU summit on Dec. 13-14 and most analysts expect sterling to remain subdued until then.

New Zealand Economy and the Reserve bank of New Zealand

The New Zealand Dollar has outperformed in November thanks to some positive economic data in New Zealand. The New Zealand Dollar has been boosted after official data revealed a sharp improvement in the labour market during the third-quarter that reduces the odds of the Reserve Bank of New Zealand (RBNZ) going ahead with an interest rate cut over the coming months. Reserve Bank of New Zealand officials have warned in recent months that it could soon cut its interest rate if the economy does not gather steam during the second-half of 2018. Employment grew and unemployment fell during the third quarter. And both at a pace that was much faster than the market had anticipated. But the rate of wage growth remained lacklustre during the recent period. The seasonally adjusted unemployment rate fell to 3.9% in the September 2018 quarter. This is down from 4.4% last quarter and is the lowest unemployment rate since the June 2008 quarter. The Reserve Bank of New Zealand (RBNZ) is scheduled to hold its next monetary policy meeting on February 13, 2019.

Technical Outlook

From a technical perspective, the GBP/NZD might remain on the downside although, its downside potential could be quite limited as the pair has fallen to test its lower uptrend channel line. The pair will certainly attempt to remain above its lower uptrend channel line, as depicted by the graph below, which coincides with Fibonacci 50.0% (1.85811). The rate was tested last time back in early January of 2018. As long as the pair remains above Fibonacci 50.0% and moreover, maintains its long term uptrend, by staying above its lower uptrend channel line, one should expect a possible recovery towards Resistance 1 of 1.90254. The Weekly Relative Strength Index has recently approached its oversold threshold of 30, which could soon invite some bulls due to its bargain price and cheaper value. On the downside, the pair is still limited to Fibonacci 50.00% (1.85811), but if it soon breaches below then this could mean that the pair’s downward correction could accelerate further down to Fibonacci 61.8% (Support 1 of 1.81366).

Pivot:

1.85811

Resistance 3:

2.04662

Resistance 2:

1.95771

Resistance 1:

1.90254

Support 1:

1.81366

Support 2:

1.75830

Support 3:

1.66939


Graph: (GBP/NZD, Weekly)

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