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NZD/USD forex signal - Inverse head and shoulders - 09 Feb 2018

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The Reserve Bank of New Zealand left interest rates unchanged at its monetary policy meeting earlier this week. The overnight cash rate was left unchanged at 1.75% and contrary to some market expectations; the central bank did not make much changes to the language in its monetary policy statement or the forward guidance. This indicated that the central bank expects rates to remain unchanged in the near term.

The New Zealand dollar was seen falling after the RBNZ's monetary policy statement. In the meeting, the central bank also released its forecasts on GDP and inflation in the medium and long term. Based on the data, the central bank expects GDP to rise gradually this year and in 2019.

However, inflation forecasts, according to the central bank are expected to reach the 2% target only closer to 2020. The central bank also gave the forecasts on interest rates and the RBNZ's overnight cash rate was expected to rise to 1.90% by 2019. The forecasts suggested that as of now, the central bank expects to hike rates only by 2019 or early 2020.

The data comes following the quarterly unemployment data that was released earlier this week. Although New Zealand's unemployment rate fell to 4.5% marking a nine year low, the lack of wage growth inflation sparked concerns that inflation in New Zealand will rise at a sluggish pace.

The NZDUSD fell sharply following the RBNZ's decision. We expect that further declines could continue as NZDUSD could be seen testing the initial support level at 0.7160. This marks the support level as well as the breakout level from the long term trend line.

A rebound at this support level could potentially be forming the right shoulder of the inverse head and shoulder pattern that is currently evolving. Therefore, we would go long on NZDUSD at 0.7160 targeting the initial neckline resistance at 0.7330 level. In the event that NZDUSD falls below 0.7090, this bullish view would be invalidated.

forex trading signal nzdusd 09 feb 2018

Disclaimer: The article is written for informative purposes only and it is not financial advice. The author does not have any position in the currency pairs mentioned, and no plans to initiate a position. He wrote the article himself and expressed his own opinions. Readers should not treat any opinion expressed by the author as a specific inducement to make a particular trade or follow a particular strategy, but only as an expression of his opinion. All risks and coasts associated with online trading are your responsibility.