Decision 24-hours away

The Reserve Bank of New Zealand will announce their interest rate decision in less than 24 hours and there is a good enough debate which could lead to some extra market volatility.

The debate has economists vs. traders pared up against each other. The economists from Reuters have 21 of 24 looking for a cut from 2.75% to 2.5%. While Bloomberg has the tally at 15 or 18 for a 0.25% cut. Meanwhile, traders are more evenly divided.

With uncertainty comes volatility so be aware. The decision will take place at 3 PM ET/2000 GMT.

How are the technicals lining up before the decision?

The NZDUSD surged on Friday to the highest level since October 30th. The surge came in the aftermath of the US NFP report. During the squeeze, the price of the NZDUSD stepped higher to a peak of 0.6786. Since then the price has trended lower as focus shifted to the central banks rate cut prospect (and quite frankly the FOMC rate rise prospects). One central bank raising and one easing is the recipe for a lower currency, not a higher one. Add that commodity prices are not so hot either (NZDUSD bearish). Most of the selling took place during Monday's trading. Tuesday has seen the price move higher and lower although the pair is lower on the day.

Looking at the hourly chart above, the fall over the last few days has taken the pair back below both the 100 hour MA (blue line currently at 0.6664). Today, the 200 hour MA (green line in the chart above) at the 0.6630 was broken on the way to a low at 0.6610.

Buyers stalled the decline just ahead of the low from last Thursday and the 50% retracement at the same level of 0.66068. Looking further back, the low from last Wednesday was at 0.6612. and the swing high from Nov 20 came in at 0.66045. So in short, you can put a nice line in the sand at the 0.6604-12 area. This will be the dividing line for bullish and bearish going forward.

Another level to define bullish and bearish is the 100 hour MA (blue line in the chart above). That level comes in at 0.66647.

The yellow area - with the peak at the 100 hour MA and a low at the 50%, the cluster of swing lows and high - will be a neutral area through the decision. It may also define the trading range for the pair between now and the decision (although I would expect if there is a bias over the next 24 hours it would be to the downside) and.

Do I expect this neutral area to be taken out at decision time tomorrow. You bet.

No cut and there should be a spike above the 100 hour MA at 0.6664. The next key level above that will be the 0.6700 level. The 50% of the move down from the Friday peak (not shown) comes in near that level. Do not be surprised to see seller jump on the chance to sell against that level on a rally (with stops above - say at 0.7710). A move above that and the topside trend line (blue circles) will be the target.

On the downside, a cut should quickly send the price below the 0.6604-12 area (and 0.6600). Traders will likely be looking toward the 100 day MA at the 0.6543 as a realistic easy target. That moving average may solicit some profit taking buying "just because" it is the 100 day MA and risk can be defined and limited. Today, the AUDUSD stalled at the 100 day MA today for the same reason. However, it was just a few weeks ago that the price of the pair traded as low as 0.6427. So I would expect on a cut that any bounce will be met with traders looking to sell.

On a break, look for the 0.6497 area to be targeted next. (old swing lows and highs).