By Stuart Talman, XE currency strategist
A typically quiet Monday saw the dollar commence the week on a mildly softer note as the euro outperformed through Asian trade, the latter bolstered by a German election result that was largely in line with polling. Whilst the German political landscape remains fractured, hopes for the formation a market friendly coalition between new German Chancellor Friedrich Merz's Christian Democratic Union (CDU) and the Social Democrats (SPD) lifted EUR/USD from the week's open near 1.0470 to 2-month highs a couple of pips shy of 1.0530 in mid-afternoon trade.
By the New York morning, the euro's advance had been unwound, perhaps an acknowledgment of the tricky coalition talks ahead and the possibility of an obstructive parliament that may struggle to deliver business and investment friendly policies, much needed to lift the EU's largest economy out of its structural stagnation.
As for NZD/EUR, price action continues to test the upper bound of a 0.5400 - 0.5500 range that has evolved from mid-December. Having marked Friday's highs a pip or so through 0.5500, its highest level since 17 December, NZD/EUR retraced a few pips below 0.5470 before firming through the Asian afternoon and the first half of European trade. A decisive advance beyond the 200-day moving average, located in the 0.5490's is required to confirm a bullish bias for the pair.
Commencing the new week in the 0.5730's, the New Zealand dollar initially benefited from the stronger euro, NZD/USD bid to within pip of 0.5770 before a reversal commenced in local afternoon trade. Whilst news flow has been light to start the week with relatively tight ranges and marginal intraday changes, price action suggests NZD bulls are unwilling challenge 58 US cents for the time being.
The 100-day moving average presents as a near-term major technical hurdle to clear, the widely observed trade following indicator tracking close to 0.5800. Given this week's light data docket, the market may trade cautiously ahead of next week's scheduled tariff rollouts for Mexico and Canada. If negotiations/concessions prove productive insofar as the Trump administration refrains from actioning the levies, this is the obvious fundamental catalyst for the Kiwi to extend higher through 58 US cents.
On the downside, 0.5680 support will be monitored should the Kiwi extend its pullback from Friday's swing high. On a short-term basis, price action failing to hold above suggests NZD/USD will continue to track sideways as more information is required to confirm the next key directional move.
On the data front, domestic retail sales grew by +0.9% for the December quarter (vs +0.6%, expected), rising from the prior quarter's flat reading. Whilst it's an encouraging result, the highest QoQ gain in three years, household spending levels remain suppressed when compared to recent years.
The day ahead is absent any tier 1 data releases, therefore we're likely to witness a subdued 24 hours of trading……the Kiwi to oscillate either side of 0.5750.
Stuart Talman is Director of Sales at XE. You can contact him here.
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