Trade Idea: Short-Term NZD/JPY Downtrend

The RBNZ is widely expected to cut interest rates in their monetary policy statement this week so I’m gonna try to catch a short Kiwi trade. Here’s what I’m seeing on NZD/JPY.

The pair has been moving inside a descending channel on its 1-hour forex chart and is currently testing the resistance between the 73.00-73.50 levels. This area lines up with the 38.2% Fibonacci retracement level and a former support level, which might now hold as resistance.

Short NZD/JPY

NZD/JPY 1-hour Forex Chart

NZD/JPY 1-hour Forex Chart

This downtrend could carry on as traders continue to price in expectations of a 0.25% interest rate cut from the RBNZ later this week. Recall that the central bank issued an economic update last month, highlighting its concerns about inflation and Kiwi strength. Of particular importance was Wheeler’s change in wording when it comes to further easing from “may be required” in their previous policy statement to “WILL be required” in the economic update.

As for the Japanese yen, the lower-yielding currency appears to be retreating on the pickup in risk appetite these days and also on speculations of additional BOJ easing in their September meeting. However, yen bulls might simply take this as an opportunity to buy the Japanese currency at better prices, especially if risk aversion returns.

I’ve decided to enter a small position at market with a stop past the swing high of 75.00 and a target at the bottom of the channel near the 71.00 handle. Stochastic is already heading south from the overbought zone so sellers might be taking the upper hand, but I’m still ready to add to my position on a higher pullback.

Here’s what I have:

Shorted NZD/JPY at market (73.25) for 0.25% risk, stop loss at 75.25, profit target at 71.25 for a simple 1:1 trade. 

I’ll probably close this trade right around the time of the RBNZ decision to minimize event risk in case they still  hold their fire or to avoid a buy-the-rumor-sell-the-news reversal. As always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.

Risk Disclosure
Pipcrawler’s Q2 2016 Blog Trading Performance
Pipcrawler’s Favorite Trading Books