GBPNZD Analysis (Aug, 2021)
The United Kingdom continues to face increasing infections which under current regulations forces anyone notified to self-isolate for 7 days. The vaccination programme has been strong which has seen deaths fall, however, the self isolation has caused businesses to suffer worker shortages.
New Zealand on the flip side has managed to keep limited restrictions during the pandemic, closing borders and stimulating the economy with lower interest rates. However, as New Zealand now seeks to deal with inflation the central bank has mentioned they will be increasing interest rates as early as next month. This is a hawkish view to stabilise inflation.
Logikfx Technology Summary
Overall, the Logikfx technology summary has shown a bearish outlook on GBPNZD. The summary concluded that three out the four main fundamental indicators are bearish.
Macro currency strength meter - bearish
GDP Differentials indicator - bullish
Interest rate differentials indicator - bearish
Commitment of Traders Analysis (COTA) - bearish
This creates an overall bias to have a bearish outlook on GBPNZD.
Macro currency strength meter
The macro currency strength meter overall the past 2 weeks has seen fundamental data show bearish signs for GBP. On the flip side the past 3 weeks NZD has shown bullish signs. This crossover in the data creates an overall bearish outlook on GBPZD.
What we'll be waiting for a continued sign that both GBP and NZD maintain their trajectory.
GDP Differential Indicator
The GDP differential indicator shows the output of both the UK and NZD comparing them against each other. What we can take from the indicator is that the UK is expected to outpace New Zealand by 2022 which is an official forecast by the IMF.
This is overall bullish and goes against our bearish outlook.
Trade analysis (Imports/ exports)
Air New Zealand was one of the companies analysed against GBPNZD. What we've identified is a slightly negative correlation between the two.
Recent price data of AIR has shown the company continues to struggle as travel restrictions are still in place which is negatively affecting AIR profitability. Overall, AIR is actually showing bullish signs for GBPNZD which goes against our bearish outlook.
A2 Milk is another company which has been affected by the pandemic. The travel restrictions and government regulations in Australia and China have caused A2 milk to drop significantly. China has a huge demand on powdered milk products but the travel restrictions have slumped this demand as they're generally sent over from personal shoppers.
Again, the negative price action creates a bullish outlook for GBPNZD which means overall our trade analysis is also bullish and not bearish.
Interest Rate Differentials
The interest rate differentials are currently bearish for GBPNZD which in the coming months will start to become even more bearish. Main reason being the central bank within New Zealand has mentioned they will be raising interest rates on their side.
This means in the long term GBPNZD is starting to look like a promising bearish movement.
Stock Market Analysis
NZX50 has had a strong performance over the past year considering the pandemic. Overall, it looks like the monetary and fiscal stimulus has worked well for companies across New Zealand. The stock market has grown past pre-pandemic levels but the past 5 months have started to shown some bearish signals.
Overall, this is bearish for GBPNZD due to falling from previous highs set mid December.
Commitment of traders analysis
Overall, the commitment of traders analysis is starting to stack up heavily in favour of a bearish move. The differential between open interest suggests hedge funds are starting to sell GBP and continue buying NZD.
However, one thing we want to keep an eye is making sure the solid blue line continues to fall below zero. This would confirm our idea is with the market and not against it.
Price trends
Currently the price trends have been incredibly bullish the past few months. The red lines show major levels of resistance seen in the past where sellers have come in and pushed prices down. We can expect prices to slightly nudge higher here but we want to start identifying bearish signals in price around this area to see if selling power in price confirms fundamentals.
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