Forex

NZD/USD could slip back to the 0.6220 region – UOB

NEWS | 2/16/2023 8:36:38 AM GMT | By Pablo Piovano

According to Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, further selling pressure could drag NZD/USD to the 0.6220 in the next few weeks.

Key Quotes

24-hour view: “Yesterday, we expected NZD to trade within a range of 0.6300/0.6365. However, NZD plummeted to 0.6253 before rebounding. Despite the rebound, the weakness does not appear to have stabilized. From here, as long as NZD stays below 0.6310 (minor resistance is at 0.6290), NZD could dip to 0.6240 before stabilization is likely. The major support at 0.6220 is not expected to come under threat today.”

“Our latest narrative was from two days ago (14 Feb, spot at 0.6360) where NZD is likely to consolidate and trade between 0.6270 and 0.6450. Yesterday, NZD cracked the solid support at 0.6270 and dropped to 0.6253. The rapid increase in downward momentum suggests NZD could drop further to 0.6220, possibly 0.6195. The downside risk is intact as long as NZD stays below the ‘strong resistance’ level, currently at 0.6345.”

Economic Forex calendar from 16 February 2023

Time

Region

Importance

Event

Frequency

Prev

Forecast

Actual

Thursday, 16 February 2023

02:00

 USD

December

213.4

28.6

02:00

 USD

December

171.5

152.8

02:45

 NZD

Visitor Arrivals

December

4257%

5740.9%

04:50

 JPY

December

-8.3%

3%

1.6%

04:50

 JPY

December

-3.7%

-6%

-6.6%

04:50

 JPY

January

-1448.5

-3871.5

-3496.6

05:30

 AUD

January

-19.9

20

-11.5

05:30

 AUD

January

3.5%

3.5%

3.7%

14:00

 EUR

ECB Economic Bulletin

18:30

 USD

Continuing Jobless Claims

1688

1695

18:30

 USD

196

200

18:30

 USD

January

6.2%

5.4%

18:30

 USD

January

-0.5%

0.4%

18:30

 USD

January

0.1%

0.3%

18:30

 USD

January

5.5%

4.9%

18:30

 USD

January

1.337

1.35

18:30

 USD

January

1.382

1.36

18:30

 USD

February

-8.9

-7.4

18:45

 USD

FOMC Member Mester Speaks

23:30

 USD

FOMC Member James Bullard Speaks

 Foreign exchange market Definition

The foreign exchange market (forex, FX, or currency market) is a global decentralized market for the trading of currencies. The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. Electronic Broking Services (EBS) and Thomson Reuters Dealing are two main interbank FX trading platforms. The foreign exchange market determines the relative values of different currencies.[1]

The foreign exchange market works through financial institutions, and it operates on several levels. Behind the scenes banks turn to a smaller number of financial firms known as “dealers,” who are actively involved in large quantities of foreign exchange trading. Most foreign exchange dealers are banks, so this behind-the-scenes market is sometimes called the “interbank market”, although a few insurance companies and other kinds of financial firms are involved. Trades between foreign exchange dealers can be very large, involving hundreds of millions of dollars.[citation needed] Because of the sovereignty issue when involving two currencies, Forex has little (if any) supervisory entity regulating its actions.

Definition of 'Foreign Exchange Market'

The market in which participants are able to buy, sell, exchange and speculate on currencies. Foreign exchange markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. The forex market is considered to be the largest financial market in the world.

The foreign exchange market assists international trade and investments by enabling currency conversion. For example, it permits a business in the United States to import goods from the European Union member states, especially Eurozone members, and pay euros, even though its income is in United States dollars. It also supports direct speculation and evaluation relative to the value of currencies, and the carry trade, speculation based on the interest rate differential between two currencies.[2]

In a typical foreign exchange transaction, a party purchases some quantity of one currency by paying for some quantity of another currency. The modern foreign exchange market began forming during the 1970s after three decades of government restrictions on foreign exchange transactions (the Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states after World War II), when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.

The foreign exchange market is unique because of the following characteristics:

its huge trading volume representing the largest asset class in the world leading to high liquidity;

its geographical dispersion;

its continuous operation: 24 hours a day except weekends, i.e., trading from 22:00 GMT on Sunday (Sydney) until 22:00 GMT Friday (New York);

the variety of factors that affect exchange rates;

the low margins of relative profit compared with other markets of fixed income; and

the use of leverage to enhance profit and loss margins and with respect to account size.

As such, it has been referred to as the market closest to the ideal of perfect competition, notwithstanding currency intervention by central banks.

According to the Bank for International Settlements,[3] the preliminary global results from the 2013 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity show that trading in foreign exchange markets averaged $5.3 trillion per day in April 2013. This is up from $4.0 trillion in April 2010 and $3.3 trillion in April 2007. Foreign exchange swaps were the most actively traded instruments in April 2013, at $2.2 trillion per day, followed by spot trading at $2.0 trillion.

According to the Bank for International Settlements,[4] as of April 2010, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007. Some firms specializing on foreign exchange market had put the average daily turnover in excess of US$4 trillion.[5]

The $3.98 trillion break-down is as follows:

$1.490 trillion in spot transactions

$475 billion in outright forwards

$1.765 trillion in foreign exchange swaps

$43 billion currency swaps

$207 billion in options and other products

market in the world.

Investopedia Says

Investopedia explains 'Foreign Exchange Market'

Because the currency markets are large and liquid, they are believed to be the most efficient financial markets. It is important to realize that the foreign exchange market is not a single exchange, but is constructed of a global network of computers that connects participants from all parts of the world.