Risk sentiment is back on a negative swing, and with upcoming economic updates to potentially add to that vibe, we’re checking out yen setups for short-term pips.
Will this support retest (possibly break) on NZD/JPY draw in more sellers?
Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming in EUR/JPY on risk-off flows & technical breaks, so be sure to check that out to see if there is still a potential play!
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Fresh Market Headlines & Economic Data:
- Wall Street opens lower on economic concerns, trade war fears
- U.S. Weekly jobless claims total 2.981 million, bringing coronavirus tally to 36.5 million
- Oil higher as big production cuts, modest pickup in demand boost hopes market will move back toward balance
- U.S. import prices post largest drop in over five years
- Canada March factory sales slump by the most in over 11 years
- German inflation rate +0.9% y/y in April
- German wholesale prices -1.4% m/m in April
- ECB Economic bulletin: Ready to support the euro area during the coronavirus crisis.
- We will not give up our independence to EU, UK cabinet agrees
- Swiss producer and import price index fell by 1.3% m/m in April 2020
- BOJ’s Kuroda says no need to deepen negative rates now
Upcoming Potential Catalysts on the Economic Calendar for U.S. & Asia:
- ECB de Guindos speech at 3:00 pm GMT
- Fed Kashkari speech at 5:00 pm GMT
- Fed Kaplan speech at 10:00 pm GMT
- New Zealand Manufacturing index at 10:30 pm GMT
- Japan PPI at 11:50 pm GMT
- China Industrial Production, Retail Sales, Unemployment rate at 2:00 am GMT (May 15)
What to Watch: NZD/JPY
As mentioned in the Headlines, traders are in sell mode on risk assets as economic and trade war fears have been rising over the past session. This has led to a steady rally in risk assets on the session, including the Japanese yen, the de facto major currency “safe haven.”
And with more data ahead in the upcoming Asia session to fuel economic fears, the odds are pretty good that this theme could continue, most notably the updates coming from China.
With recent sentiment sour on the Kiwi dollar after a very dovish RBNZ monetary policy meeting (RBNZ leaves negative rates on the table), this makes NZD/JPY likely one of the best plays for short-term pips until market themes shift once again.
In terms of price action, NZD/JPY is testing a very strong support area between 64.00 – 64.50, so the question now is whether it’ll break or will buyers take back control?
Well, the odds are in favor of the bears at the moment, and if we do see negative economic updates from China and New Zealand coming soon, then a break below 64.00 will likely draw in more sellers.
If you’re looking to play that scenario, shorting from current levels up to 64.50 makes sense if you’re aggressive. And for the more prudent, waiting for the data and a “break/retest/hold” pattern around 64.00 is the scenario to watch out for.
For the bulls, we gotta see a combination of both positive surprises from NZ and CN later in the Friday Asia session, as well as a positive shift in global risk sentiment.
That’ll likely take a positive turn in COVID case/death numbers, fresh stimulus measures from major economies, and/or positive news on COVID drug therapies/vaccines.
In this scenario, a break above 64.50 is the buy signal that could draw in traders, and with a daily ATR of around 90 pips, the top of the range around 66.00 is a reasonable 2 – 5 day target.
