07-NOV-2018, WEDNESDAY

1) Asia Stocks Await US Midterm Results as US Dollar Sits on Support
2) NZD/USD Price Confirms Trend Reversal on New Zealand Jobs Report
3) Where Does the Euro Go From Here as Italian Concerns Linger?

1) Asia Stocks Await US Midterm Results as US Dollar Sits on Support

Meaningful outcomes from polling data should begin crossing the wires around 2:00 GMT Wednesday November 7th. Forecasts are for Democrats to take control of the House of Representatives while Republicans hold on to the Senate. Such an outcome could end up boosting the US Dollar in the medium-term as this allows US President Donald Trump to revive his outline for an infrastructure spending plam.

This may force the Fed into a steeper tightening cycle which has already been impacted by the 2017 US corporate tax cuts. Given how vulnerable global stock markets were last month, it may very well be that weakness could resume. Until the results are in, Asia Pacific benchmark indexes and FX will be eagerly awaiting the outcome.

As the US midterms outcome is just around the corner, the US Dollar finds itself siting right on top of horizontal support which is a range between 96.16 and 96.05. Should DXY gain on the results, we may see resistance hold between 96.98 and 97.20 which is the August and October high respectively. A push above those exposes the June 20th high at 97.87. A descent through support opens the door to testing a near-term rising trend line from September.

2) NZD/USD Price Confirms Trend Reversal on New Zealand Jobs Report

As anticipated, the New Zealand Dollar soared after a better-than-expected local employment report crossed the wires. New Zealand’s unemployment rate dropped significantly from 4.4% in the second quarter to 3.9% in the third, economists were anticipating for it to hold steady at 4.4%. This marks the lowest jobless rate since the second quarter of 2008, more than ten years ago. More good news could be found in other aspects of the data, employment rose by 2.8% y/y versus 2.0% expected and 3.7% prior. On a quarterly basis, the country increased hiring by 1.1% compared to 0.5% estimated and 0.6% in Q2. The latter was at its fastest pace in exactly one year. On top of that, the labor force participation rate unexpectedly soared to 71.1% from 70.9% which matched the 2017 record high.

Finally, average hourly earnings clocked in at 1.4% q/q versus 0.8% expected and 0.2% prior. That was the most impressive rate of pay growth since the third quarter of 2014. Overall, these statistics match the general trend of local economic news flow tending to outperform relative to economists’ expectations. This suggests that their models are under pricing the health and vigor of New Zealand’s economy. Domestic government bond yields climbed alongside the New Zealand Dollar, hinting that the data further reduced remaining RBNZ rate cut bets. Combining this jobs report with local CPI also beating estimates in the third quarter offers a compelling argument that the Reserve bank of New Zealand may shift its forward guidance tomorrow. At the moment, they have their doors open to a rate cut and a hike as their next move.

Should the central bank shift its tone to favoring a rate hike as their next move, there may be room for more NZD gains. With that said, a result to the contrary would probably erase a lot of the significant progress the Kiwi Dollar has made recently. But for now, the New Zealand Dollar looks to the 2018 US midterm elections first. Results should cross the wires early into Wednesday’s trading session.

3) Where Does the Euro Go From Here as Italian Concerns Linger?

Last week, EUR/USD found itself rejected from an area of resistance near the 1.1450 level, where a confluence of levels and lines lie. The rejection has so far been short-lived with EUR/USD holding and rebounding a bit yesterday. This has in focus the potential for an inverse head-and-shoulders pattern.

On the flip-side, the trend since September has been decisively negative, and with resistance thus far keeping a lid on the Euro price action could merely be corrective in an ongoing downtrend. With a catalyst upon us we should know real soon which way this situation wants to resolve.

A sustained move above 1.1456 will confirm the inverse H&S scenario, but will quickly bring into play a familiar barrier in the low-1.1500s. Whether that can be crossed or not is to be seen. A breakdown under 1.1355 will give the upper hand to the correction scenario and likely bring into play the important 11300 level, which interestingly enough, was first forged as an important level following the results of the U.S. Presidential election in 2016. A break below could trigger sell orders and send the Euro down rather quickly from there.