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GBPNZD analysis | Market rallies from a pivotal support zone
BY Janne Muta
|October 18, 2023GBPNZD Analysis - The GBP rallied against the NZD today following the release of higher-than-expected inflation data from the UK this morning. As a result, the Bank of England (BoE) is expected to maintain elevated interest rates for an extended period. This market response aligns with our technical GBPNZD analysis, which indicates potential upward movement across all examined timeframes covered in this report.
UK Inflation Details
The annualised UK inflation rate remained at 6.7% in September, defying expectations of a dip to 6.6%. While food and furniture costs rose less sharply than in August, declining energy costs didn't fall as much as analysts had expected. The number was influenced by a rise in motor fuel costs.
Core Inflation Stats
Core inflation, excluding volatile items like energy and food, dropped to 6.1%, slightly above the predicted 6%. Note also that the CPI increased by 0.5% monthly, marking the largest rise since May.
BoE's Policy Challenge
Both rates remain well above the Bank of England's 2% target, underscoring ongoing inflationary pressures. These figures pose a challenge for policymakers, who are likely to maintain current interest rates.
This GBPNZD analysis is timely as the UK CPI numbers have just pushed the currency pair higher and market participants prepare to trade the key macroeconomic data released from both New Zealand and the UK tomorrow.
The key risk events for GBPNZD are
- NZ Balance of Trade
- UK Consumer Confidence
- UK Retail Sales
- UK Unemployment Rate
Read the full GBPNZD analysis report below.
GBPNZD analysis
Weekly GBPNZD analysis
GBPNZD currency pair has rallied approximately 2% since it started to attract institutional buying at a historical market structure level (2.0326) we have focused on in our previous GBPNZD analysis reports. This level is closely aligned with the 38.2% Fibonacci retracement level at 2.0280, adding to its significance as a support level.
6% Decline Preceding
Before this, the market had declined 6% from the August high (2.1586). Institutional traders probably didn't solely focus on the 2.0280 - 2.0326 confluence area but also saw value in the currency pair after a substantial decline. These factors suggest that the confluence area remains a significant market structure level we should keep in mind for future reference.
Indicator Bullishness
GBPNZD analysis based on indicators suggests bullishness in the currency pair. Both moving averages are pointing higher with the fast SMA(20) above the slow SMA(50). Furthermore, the stochastic oscillator has given a buy signal with the oscillator line (blue) crossing above the signal line (red) at the time when the indicator was in the oversold territory.
Limit of Indicators
Note, however, that indicators do not dictate price movements. Instead, they follow what the price does. Therefore, their value isn't in their predictive power but rather in that traders who follow them can (in bullish setups) bring additional buying in after you have already bought based on price action and key market structure levels.
Weekly Chart View
Our GBPNZD analysis indicates that in the weekly timeframe chart, the market remains bullish above the 2.0280 - 2.0326 confluence area and could trade higher to the 2.0809 level and then possibly to 2.1130 on extension.
Price Action Ahead
The strong rally from the confluence area suggests the market could rally higher in the coming weeks, but as always, we need to see continued price action to support this indication. However, should the bears be able to push the market below the confluence area, look for a move down to 1.9790.
Daily GBPNZD technical analysis
GBPNZD has penetrated the 2.0583 level where the 23.6% retracement level and a market structure level coincide. The penetration of this confluence level causes what's known as a change of character in market structure analysis.
Double Bottom View
Another way to approach GBPNZD analysis is to recognise a double bottom inside the 2.0280 - 2.0326 confluence zone we focused on in the weekly GBPNZD analysis above. Either way, the price action now has a different character than earlier. This suggests that expected values for returns from long trades are now greater than from short trades.
Sub-2.0583 Factors
Should the market dip below 2.0583, we should pay attention to the reactionary low and the SMA(20) coinciding at 2.0488.
Resistance at 2.0918
Above 2.0583, the nearest key resistance level lies at 2.0918. This is where a market structure level from July, the 50% Fibonacci retracement level, and the SMA(50) are all closely aligned. Should the market maintain its bullish stance, swing traders may well target this level.
4h GBPNZD technical analysis
In the 4h chart, the market is creating higher highs and higher lows. The moving averages point higher with the SMA(20) above the SMA(50), and the market is bouncing higher roughly from the SMA(20). These are bullish indications, and as such, our GBPNZD analysis suggests the market could break higher.
Momentum Considerations
There has been some loss of momentum, however. Therefore, we need to see continued bullish price action (not just one candle) to justify long trades. Higher lows would signal that buyers are in control. This would increase the probability of the market breaking beyond the most recent high at 2.0707.
Bearish Scenarios
Should the market fail to do so, we could see it trading down to the SMA(50), which is currently at 2.0497. Before this can happen, though, the bull channel low (currently at 2.0551) would need to be penetrated.
Multi-Timeframe View
All in all, our GBPNZD analysis indicates bullishness across all timeframes: weekly, daily, and 4-hour. Therefore, bearish scenarios seem less likely; however, as our readers know, we do not provide investment advice or predictions. Rather, our GBPNZD analysis is made available to our traders to equip them with the tools they need for continued market analysis and better trading decisions.
GBP and NZD currency strength analysis
GBPNZD has been stronger than NZD this week. AUD is the strongest while JPY is the weakest.
To gain better understanding on the potential future price moves in these currencies refer to the GBPNZD analysis above.
Client sentiment analysis
TIOmarkets clients are very bearish on GBPNZD with 87% of clients holding short positions and only 13% long in the market.
Please remember that the retail trader client sentiment is a contrarian indicator as most of the retail traders are on average betting against the market trends. This is why, experienced traders tend to trade against the retail client sentiment. You can follow the TIOmarkets client sentiment live on our Forex dashboard.
The key takeaways from this GBPNZD analysis report
- Weekly GBPNZD analysis shows bullish signals with support at the 2.0280 - 2.0326 confluence area. The 38.2% Fibonacci retracement level at 2.0280 adds to its significance. The stochastic oscillator indicates a buy signal in the oversold territory.
- On the daily GBPNZD chart, the market has breached the 2.0583 level, coinciding with the 23.6% Fibonacci retracement. This change of character suggests greater returns from long trades. Watch for the reactionary low and SMA(20) at 2.0488.
- In the 4-hour GBPNZD chart, higher highs and higher lows are forming. Both SMA(20) and SMA(50) are inclined upwards, but some loss of momentum is observed. The bull channel low currently stands at 2.0551.
- UK inflation data supports GBPNZD bullishness. The annualised rate remained at 6.7% in September, suggesting the Bank of England is likely to maintain elevated interest rates. This aligns with the bullish technical indicators in GBPNZD.
- Core inflation in the UK dropped to 6.1%, slightly above the predicted 6%. Despite this, the CPI increased by 0.5% monthly, marking its largest rise since May. Both these rates are well above the Bank of England's 2% target.
- For intra-day traders, the most recent high at 2.0707 in the 4-hour chart serves as a key level. A sustained breach above this level would confirm bullish control. Should the market dip, the SMA(50) at 2.0497 will act as a potential support.
The next main risk events
- USD - Building Permits
- USD - FOMC Member Waller Speaks
- USD - FOMC Member Harker Speaks
- AUD - Employment Change
- AUD - Unemployment Rate
- USD - Unemployment Claims
- USD - Philly Fed Manufacturing Index
- USD - Existing Home Sales
- USD - Fed Chair Powell Speaks
- USD - FOMC Member Harker Speaks
- CNY - 1-y Loan Prime Rate
- CNY - 5-y Loan Prime Rate
- NZD - RBNZ Statement of Intent
For more information and details see the TIOmarkets economic calendar.
While research has been undertaken to compile the above content, it remains an informational and educational piece only. None of the content provided constitutes any form of investment advice.
Tio Markets UK Limited is a company registered in England and Wales under company number 06592025 and is authorised and regulated by the Financial Conduct Authority FRN: 488900
Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. All trading involves risk.
DISCLAIMER: Tio Markets offers an exclusively execution-only service. The views expressed are for information purposes only. None of the content provided constitutes any form of investment advice. The comments are made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances, or needs. The content has not been prepared in accordance with any legal requirements for financial analysis and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval.
Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.
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