NZD/JPY Coils Below Key Resistance
Matt Simpson August 20, 2019 2:07 AM
Since RBNZ surprised markets with a 50 bps cut this month, NZD/JPY has coiled below key resistance as it builds up energy for its next directional move. How prices react around resistance could be the key for way it breaks next.
Whilst we see the area around 69.30 as pivotal, we are open to a directional move either side of it. And there are a few scenarios to consider.
- Ongoing trade wars are likely to remain a headwind for commodity currencies such as NZD, CAD and AUD, so for now any upside is likely to be corrective in our view.
- However, if markets are to revert to risk-on, NZD/JPY could be a prime candidate for a rebound.
- Further, markets aren’t expecting another rate from RBNZ any time soon, as we have to look ahead one full year before OIS markets fully price in another 25-bps cut. Still, if data picks up, it could provide a tailwind and add to the argument for a bounce, even if it’s not strong enough to justify a trend reversal.
Technically, the structure is firmly bearish and we like how momentum intensified on its latest leg lower. With prices now coiling around the 68c level the case for range expansion is building, although it could be argued that we’re in need of mean reversion before its next leg lower.
Key resistance around 69.30 comprises of the Flash-crash low, 2016 lows and weekly R1 (projected form its weekly pivot).
- If prices are to drift towards this key level, bears could fade into the move and consider a stop somewhere above the zone. This allows them to either short within its current range, or position themselves for an anticipated break to new lows.
- However, if range expansion breaks above key resistance, we can assume something bigger is going down and that a deeper retracement is on the cards. Under this scenario, we could use 70c as an initial target, which is near the June low and 50% retracement level. As this is counter-trend, we’d prefer to keep targets conservative.
- Alternatively, if bearish momentum returns and breaks to new lows, we’d keep an open target. However, we’d prefer to run a tighter stop given the lack of mean reversion under this scenario.
Either way, how prices react below key resistance remains key for its next directional break.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.