We’ll hear the latest major monetary policy statement from the Reserve Bank of New Zealand this week, raising the probability for lots of action for the New Zealand dollar. Does that mean NZD/JPY will continue the downtrend lower or will the bulls step in as it retests a major psychological level?
NZD/JPY Short Setup
In case you haven’t caught up with this week’s events, the latest monetary policy statement from the Reserve Bank of New Zealand is coming this Thursday, which could give Kiwi traders some volatility to work with. Expectations are for the RBNZ to hold off of any changes given the recent run of better-than-expected economic updates (NZ unemployment has fallen to 4.0% and wages have risen by 2.6%, 2-year inflation expectation in New Zealand higher in Q1 2020).
The RBNZ is also expected to give rhetoric that it’s probably best to wait and see the economic effects of the Coronavirus before taking action. So, anything outside of these expectations will likely spike volatility in the Kiwi, and for me, I’ll be watching out for a move higher in NZD/JPY to play a potential swing short position.
On the four hour chart above of NZD/JPY, we can see the pair has been leaning negative since the middle of January, up until buyers took back control at the 70.00 major psychological level. It didn’t take long for buyers to take back control, but that control was momentary as sellers jumped in on the bounce around the 38% Fibonacci retracement level. We’re back to the major psychological level of 70.00, so where too next? Well, we’ve got a couple of potential next moves. First, the pair may form a double bottom around the 70.00 and draw in buyers for a short-term pop. Second, the major psychological area could break and draw in sellers to catch the momentum lower.
For me, since expectations are that there will not be a cut and recent has looked positive, I’m looking for NZD/JPY to rally ahead of the RBNZ statement. If it does and the RBNZ comes off more dovish than expected due to the Coronavirus story I will hop into a short position, hopefully around the Fibonacci retracement area to play the downtrend at a better price.
For now, I will lay down some nibbler orders near the top of the Fibonacci retracment area, and if everything goes my way, I will look to add to the position if the market trends lower. Here’s what I’m going to do:
Short half position at 71.65, max stop at 73.35 with 0.50% risk, max target at 70.05
I’m only risking 0.50% of my account on this trade and I’ve got max potential return-on-risk of around 1.10:1. It’s likely though I’ll trade out of this position manually this week, depending on the upcoming Coronavirus stories and what the RBNZ says and how the markets reaction.
What do you guys think? Are you watching NZD/JPY for a potential short position as well? Let me know in the comments section below!
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