Weekly Market Outlook: RBNZ & European PMIs in Focus
The theme over the past several weeks has been related to interest rate policy from central banks. That theme continues this week with the Reserve Bank of New Zealand (RBNZ) rate statement and press conference.
It’s widely expected the bank will increase rates although it’s not clear by how much. Considering we have had some big currency moves on central bank decisions in recent weeks, it’s a theme to keep an eye on this week.
European PMI data and US GDP figures will also be widely watched by traders for clues on the strength of the economy. Risk sentiment in stock markets is likely to continue to trade based upon headlines regarding the Russia-Ukraine conflict.
You can learn more about some of the global themes affecting the markets in this selection of education articles.
- How to Hedge Against Inflation
- Price Action Trading Strategies
- Trading Strategies for 2022
- How to Trade the US Dollar Index
Weekly Forex Calendar
Source: Forex Calendar from the MetaTrader 5 trading platform provided by Admirals.
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Trader’s Radar – RBNZ Rate Statement
On Wednesday 23 February at 1.00 am GMT, the Reserve Bank of New Zealand (RBNZ) will release its latest monetary policy statement and interest rate decision. This will be followed by a press conference one hour later.
It is widely expected the bank will increase interest rates for the third time after raising the official cash rate in its October and November meetings in 2021. The RBNZ was the earliest central bank to start increasing rates from the pandemic period.
Analysts are mixed on whether the rate hike will be 25 bps or 50 bps. Inflation has reached a 30-year high of 5.9% in the last quarter and the central bank is aiming to try and slow things down and get the figure to its 1 – 3% target range.
Source: Admirals MetaTrader 5, NZDUSD, Daily - Data range: from 17 May 2021 to 18 Feb 2022, performed on 18 Feb 2022 at 7:00 pm GMT. Please note: Past performance is not a reliable indicator of future results.
The daily price chart of the NZDUSD currency pair is shown above. The recent downtrend has stabilised after a small relief rally that started at the end of January. Currently, the price is testing a descending trend line and previous horizontal support which has turned into resistance around 0.6710.
Technically, this area is a big test for traders. If the RBNZ surprise the market with a bigger than expected rate hike, there is a chance price could break through these technical areas of resistance and attempt a push towards the next resistance around 0.6860.
However, if the central bank holds back then the current resistance levels could serve as a base for short sellers to build upon. Analysing price action after the news will be key to understanding who is in control of the market.
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Corporate Trading Updates and Stock Indices
Global stock market indices started last week full of optimism with most recording a 3-day rally higher. However, as the week developed sentiment soured with most global stock market indices ending the week in the red.
The US stock market indices have been hit the hardest and have failed to bounce meaningfully off major support levels. The threat of six and a half interest rate hikes this year from the Fed and the Russia-Ukraine conflict has made investors more cautious.
Source: Admirals MetaTrader 5, SP500, Daily - Data range: from 14 May 2021 to 18 Feb 2022, performed on 18 Feb 2022 at 6:30 pm GMT. Please note: Past performance is not a reliable indicator of future results. Past five-year performance of the S&P 500: 2021 = 26.99%, 2020 = +16.17%, 2019 = +29.09%, 2018 = -5.96%, 2017 = +19.08%
In the chart of the S&P 500 stock market index shown above, the recent decline shows the negative sentiment towards the US stock market at this current time. The bounce off the major horizontal support level around 4,270.00 was meaningful but failed to break through the 20-day and 50-day exponential moving averages.
Since then the price action has formed a double top formation which has led to more weakness. If stock sentiment continues to weaken, then traders may be looking for the price to retest the major horizontal support level around 4,270.00.
For buyers to show conviction they would need to break through a recent swing high point to create a higher high cycle formation. The recent swing high is around 4,496.00.
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