NZD/JPY jumps to the top of the watchlist as the pair retests a major resistance area ahead of potential catalysts from both Japan and New Zealand. Upside breakout or reversal ahead?
Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on GBP/USD ahead of U.K. unemployment data, 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:
- U.S. housing starts post record decline; permits slump
- Over 4 million Americans are now skipping their mortgage payments
- Fed’s Powell to urge Congress to ‘do everything’ it can to help those suffering amid pandemic
- Return of Car Traffic Fuels Surge in Oil
- UK jobless claims soar by nearly 70% in April
- German ZEW indicator of economic sentiment came in at 51.0 points in May, up by 22.8 points from the previous month
- Trump Threatens to Permanently Cut Funding to World Health Organization
Upcoming Potential Catalysts on the Economic Calendar for U.S. & Asia:
- Fed Rosengren speech at 6:00 pm GMT
- API Crude oil inventory change at 8:30 pm GMT
- New Zealand Food Prices index at 10:45 pm GMT
- Japan Tankan Index at 11:00 pm GMT
- Japan Machinery orders at 11:50 pm GMT
- Australia Leading index at 12:30 am GMT (May 20)
What to Watch: NZD/JPY
The Japanese yen took an early beating this week as global risk sentiment swung way positive on coronavirus vaccine hopes, continued optimism of economic recovery as countries ease lockdown, and continued support from central banks and governments.
This brought NZD/JPY to retest a very strong area of interest around 65.50 – 66.00, that served as a major resistance area over the past month. Is it another selling opportunity for the bears, or are the bulls ready to break this pair higher?
If you’re a bear on the pair, a few arguments to be made could be the potentially overextended rally, moving over 187 pips (one weekly ATR) from the week open. Buyers may be exhausted and the technical setup of previous resistance/overbought stochastic may draw in short-term sellers into the pair. If we see weaker-than-expected New Zealand food prices and better-than-expected Japanese data, that could spark the reversal back to the downside.
For the bulls on the pair, the recent trend of positive risk sentiment (again on lockdown easing, economic recovery hopes) is likely to continue, especially as we continue to get positive vaccine updates. This supports the bull case, and if we see negative Japanese data vs. positive New Zealand food prices later, there may be enough for the bulls to take a short-term buy on the pair.
If we see an upside break on this news of the 66.00, watch out for a “retest/hold/reversal” pattern around 66.00 before considering a long position for a potential short-term or medium-term swing move.