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Buyers Aim to Dominate GBP/NZD as Global Recession Worries Mount

Buyers Aim to Dominate GBP/NZD as Global Recession Worries Mount

Market Overview

On Monday, the FTSE 100 in London saw a rebound after six consecutive sessions of decline. Investors shifted focus to upcoming labor market data and GDP figures to gain insight into the Bank of England’s stance on interest rates for the remainder of the year. The market expects the BoE to hold rates steady at its next meeting, contrasting with the European Central Bank, which is anticipated to cut rates this week. Meanwhile, U.S. economic data has raised concerns about the growth outlook, leaving investors divided on the future trajectory of the Federal Reserve’s rate cuts.

Adding to global economic uncertainty, Japan’s GDP fell short of expectations, and China’s inflation figures showed a notable slowdown. Coupled with a drop in iron ore prices to their lowest in 22 months, these developments have deepened concerns about a global demand slowdown, pushing risk aversion higher. As a result, the New Zealand dollar (NZD), a commodity-driven currency, has come under pressure.

Technical Analysis

GBP/NZD has been on an upward trajectory since August 29, benefiting from a golden cross between the 34- and 100-period moving averages on the four-hour chart. Buyers managed to break through the two-week high at 2.12987, suggesting continued control. If buying momentum holds, the next immediate resistance at 2.13225 becomes the target. A sustained bullish push could take prices towards 2.13528 and eventually 2.13863.

Oscillator Confirmations

RSI: The Relative Strength Index is currently in the bullish zone, reflecting increased buying momentum.

MACD: The Moving Average Convergence Divergence indicator also supports the bullish trend, with positive bars and an upward signal line.

Moving Averages: Both the 34-period and 100-period moving averages align upward, confirming continued buying interest.

Alternative Scenario

If buyers lose control, we could see a pullback towards the support levels at 2.12652 and 2.12111. However, the bullish outlook remains intact unless there is a decisive break below the 2.12111 support level.

Key Levels:

  • Resistance Levels:
    • Resistance 3: 2.13863
    • Resistance 2: 2.13528
    • Resistance 1: 2.13225
  • Current Price: 2.13038
  • Support Levels:
    • Support 1: 2.12652
    • Support 2: 2.12111

Key Events to Watch

The release of U.K. labor market data on September 10, 2024, will be critical in shaping the outlook for the British pound. Despite a slowdown in wage growth, the labor market remains resilient, which could support the BoE’s balanced approach toward further rate hikes. If the labor market remains stable and global risk sentiment favors the pound, GBP/NZD could maintain its upward bias.

However, a sharper-than-expected drop in wage growth or heightened global risk aversion could cap the pound’s gains, leading to increased volatility in GBP/NZD. Traders should closely monitor how the market digests labor market signals and their implications for BoE policy.

Conclusion

GBP/NZD remains in a bullish trend, with technical indicators supporting further gains. However, much depends on upcoming economic data and global market sentiment. While the pound currently benefits from resilient labor market data and rising risk aversion, any signs of deterioration in wage growth or global economic conditions could lead to increased volatility and potentially limit further upside.

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