NZD/USD held up at confluence of 23.6% Fibo retracement of Fed rally highs

• NZD/USD has dropped to the 21-hr SMA at 0.6910.
• NZD/USD is currently trading at 0.6914, up from a low of 0.6886 and down from a high of 0.6939.

The kiwi has given back some ground, now challenging the confluence of the 21-hr SMA and the 23.6% fibo retracement area of yesterday's Fed-fuelled rally from 0.6820 area. 

However, the bird is subject to Chinese economic performance and all signs are leaning with a bearish bias on that front. US-China trade talks in Washington is also a major focus yet there is nothing that we have not already got in the past with respect to soundbites from the two-day meeting and the optimism continues to flow onto the street from Trump's upbeat tweets. 

It is really a toss-up between central bank sentiment at elsewhere. The Fed's communication to the market yesterday has left a neutral bias as the central bank prepares for the worst global economic eventuality which likely leaves the Kiwi more out of favour on such an outcome, considering that the RBNZ pricing had already fallen further in January, with OIS rates currently implying a 50% chance of a cut by November 2019 in the context of slower global growth.

"An additional factor in NZ is the RBNZ’s proposed increase in bank capital requirements, which could ultimately require the RBNZ to reduce its OCR forecast by around 25bp (Westpac still forecasts OCR hikes to start in November 2020 but at a slower pace All the above has combined to push NZ 2yr swap rates to a fresh record low of 1.87%. We see the potential for further declines, particularly if global growth concerns intensify or global asset market declines resume," analysts at Westpac explained. 

US data in the spotlight

For the meantime, it is all data dependent and tomorrow should shed some light on the US economy. Nonfarm payrolls could be taken with a pinch of salt though, considering the US government partial shutdown - But ISM data will be released. "A weaker payroll print could lead to a further rally in Treasuries, but we continue to expect 10s to range in the 2.60-2.80% range in the coming months," analysts at TD Securities wrote. 

NZD/USD levels

• Support: 0.6670
• Resistance: 0.7030

There is an hourly double top around the swing high of 0.6938, bearish, and a break to the downside would first need to hold below the confluence support at this juncture which could be a tough area to break. Bears will target the 38.2% Fibo zone made up of the Fed rally pullback lows of 0.6886 and the Fibo level at 0.6893 first of all.