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With negative risk sentiment picking up steam and the volatility in Kiwi being high after the RBNZ event, NZD/JPY looks like one to watch for potential pips.  Will the downtrend continue on economic updates ahead from New Zealand and Japan?

Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on GBP/NZD after the volatile RBNZ event, so be sure to check that out to see if there is still a potential play!

Intermarket Snapshot

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Fresh Market Headlines & Economic Data:

Dow drops more than 400 points amid concerns over growing number of coronavirus cases

IMF predicts deeper global recession due to coronavirus pandemic

U.S. presidential election odds now firmly in Biden’s favor, EIU claims

FHFA House price index up +0.2% in April

German Ifo business climate index surged to 86.2 in June from 79.7 in May

Upcoming Potential Catalysts on the Economic Calendar for U.S. & Asia:

Fed Evans speech at 4:30 pm GMT
Fed Bullard speech at 7:00 pm GMT
New Zealand Trade Balance at 10:45 pm GMT
Japan All Industry Activity at 4:30 am GMT (June 25)

What to Watch: NZD/JPY

NZD/JPY 1-Hour Forex Chart
NZD/JPY 1-Hour Forex Chart

NZD/JPY made a move lower with the rest of the Kiwi pairs on the session, a reaction to the latest monetary policy statement from the Reserve Bank of New Zealand. There was no surprise to the statement as policy was left unchanged, but what likely had traders hitting the sell button on the Kiwi were comments on the negative impact of NZD’s recent strength to New Zealand exporters.

Another contributor to NZD/JPY’s weakness on the session may be the risk-off lean we’re seeing in the markets, likely due to rising pandemic fears as covid-19 cases rise.

Looking forward, NZD/JPY could see a bit more volatility in the upcoming Asia session with the latest NZ trade balance data and Japanese industry activity data coming. These aren’t top tier events, so unless we see really big surprise numbers, it’s likely today’s RBNZ event and global risk sentiment will be the drivers of direction in the pair.

For the bulls, it’s a tough argument for a short-term long position at the moment, but if we do see a swing in risk sentiment towards positive, then this area between 68.00 – 68.50 that’s served as support this month could attract traders to buy NZD/JPY. The reward-to-risk is decent for a long position in this area if using the daily ATR of around 100 pips as your exit guide.

For the bears, the ball seems to be in your court at the moment, but after a near daily ATR move down from the session highs around 69.40, a bounce may be in the cards on profit taking from the RBNZ event.

A more conservative entry strategy would be to wait for a bounce and retest of the 69.00 major psychological handle up to the falling ‘highs’ pattern before considering a short position. Bearish reversal patterns there will likely draw in the bears back, especially if we see a weak NZ trade balance and global risk remains negative.

A downside break of the support area between 68.00 – 68.50 is also a pattern to watch, and with no major support areas in sight until probably 66.00 – 67.00, a good short-term return-on-risk is a possibility given the daily average volatility.