NZD/USD looks vulnerable to a break below 0.6400 as Wall Street falls

• Currency markets did not react much to the latest US jobs data, but could react to a continued slide in US equities.
• NZD/USD looks vulnerable to a possible drop below 0.6400 and a test of support in the 0.6380 area.
• The main focus next week will be on the US CPI data.

While currency markets did not react much to a US labor market report largely as expected that was not interpreted as having much of an impact on Fed tightening expectations, a meltdown is likely. continued in Wall Street sentiment despite NZD/USD on Friday. Less than an hour since the US open, the S&P 500 Index is trading almost 2.0% lower, after falling more than 3.5% on Thursday.

Traders cite a mix of factors ranging from concern over the Fed’s expected rapid pace of tightening this year to a weakening outlook for global growth amid still sky-high inflation. The net result for NZD/USD is that Thursday’s highs in the upper 0.6500 now look good in the rear view mirror and a break below 0.6400 and towards 0.6380 support appears to be on the cards.

If US yields, which broke higher this week (the 10-year bond topped 3.0% for the first time since December 2018), continue their upward march next week and risk appetite in Stocks remain strong, it’s a good bet to think the US dollar will remain bid. A break below 0.6380 in NZD/USD could open the door for a run down towards the next supply zone in the 0.6200 region.

The main focus next week will be on US consumer price inflation data for April, due out on Tuesday. But NZD/USD traders would also do well to keep an eye on New Zealand’s quarterly inflation expectations figures to be released on Thursday, as this will likely have an impact on RBNZ tightening expectations.

Technical levels