Chart of the day: Bearish NZDUSD

Bearish NZDUSD:

NZD: NZ rates had another big move higher yesterday. The increase in global rates, market nervousness about the likelihood of a November OCR cut and, almost certainly, unwinds of trader positions combined to push swap rates up 4 to 7bps across the curve. The two year swap rate closed at 1.06%, its highest level since the August MPS, as the market continued to price a November OCR cut at around a 50% chance. The terminal OCR is now close to 0.75%, indicating at the market now sees the most likely outcome being that the RBNZ cuts the cash rate just once more. Showing just how far the market pricing has shifted, a month ago the market was pricing a small chance that the RBNZ could take the OCR to 0.25%.

USD: Decline in US factory orders reflect subdued demand; firms cut capex: Leading indicators show that demand for American manufactured goods remained subdued at the end of 3Q as the headline factory orders slipped more than expected by 0.6% MOM in September (Aug:-0.1%), its largest decline in four months. The sub-category, durable goods orders dropped 1.2% MOM (Aug: +0.2%) more than initially expected in the preliminary report, pointing to likely decline in manufacturing production in October. Core capital orders (Nondefense capital orders excluding aircrafts) contracted for the second month by 0.6% MOM (Aug: -0.8%), reflecting US firms’ capex cut.

From a technical and trading perspective the NZDUSD has tested pivotal resistance at .6450 and yesterday posted a bearisk key reversal pattern, follow through to the donside today will see the daily VWAP flip bearish opening further downside, with initial support sited at .6350 a failure to find sufficient bids here will likely see a deeper correction to test support at .6250 where by we could form the right shoulder of a potentially bullish inverse head and shoulders pattern which would be an ideal area to cover my short positions and venture long with the requitse price action confirmation.

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