Currency Pair of the Week: NZD/JPY
Joe Perry September 22, 2020 2:01 AM
If the RBNZ is extremely dovish, and there is a flight to safety in the Yen, NZD/JPY could push lower.
The Reserve Bank of New Zealand (RBNZ) meets on Wednesday this week and expectations are that they will leave rates unchanged at 0.25%. Recall that at the August meeting, the RBNZ upped their asset purchase program to NZD 100 billion on fears of a renewed increase in Coronavirus cases as Auckland went into lockdown again. However, things aren’t turning out as bad as expected and therefore the central bank is likely to leave the purchase program unchanged as well. New Zealand’s Q2 GDP was -12.2%, however economic activity has picked up so far during Q3. Watch for a more dovish tone, as the RBNZ falls in line with other central banks around the world. The risk is that the statement is not as dovish as other monetary policy makers.
Yoshihide Sugar became the new Prime Minister of Japan last week and is expected to continue down the path of “Abenomics”. Recall that last week the BOJ met and although they upgraded their economic assessment for the first time since the coronavirus pandemic began, they also hinted that they may buy more JGBs going forward. These events combined with a weak US Dollar caused the USD/JPY to move from 106.08 down to 104.55.
The NZD/JPY has been in a long-term downtrend since early 2015. However, the pair traded significantly away from the downward sloping trendline as the coronavirus hit during February and March. The pair then began to trade higher, in part due to the US Dollar weakness. It made a false breakout above the trendline during the beginning of September near 71.30 and formed a shooting star candlestick formation on the weekly timeframe. The pair is moving lower since.
Source: Tradingview, City Index
On a daily timeframe, on September 2nd, price also posted a false breakout above two prior highs from the summer at 71.70 and traded lower, consolidating in a symmetrical triangle. On Monday, price broke lower from the triangle and is closing in on an upward sloping trendline from June 22nd near 69.20. This provides the first level of support. The next level of support is 68.83, which is the 200 Day Moving Average. The third short term support level is the low from June 22nd, near 68.15. First resistance is back at the triangle breakdown point near 70.50, then the highs from last week near 71.22. The third resistance is the high from the failed breakout near 72.00
Source: Tradingview, City Index
Last week, the Yen strengthened on the back of the BOJ and Suga begin chosen as the new PM for Japan. The US Dollar strength today is causing the NZD/USD to fall. If the RBNZ is extremely dovish and there is a flight to safety in the Yen, NZD/JPY could push much lower. If, however, the RBNZ is more bullish and the US Dollar moves lower again, we could see NZD/JPY strengthen. Either way, be on the lookout for more volatility!
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.