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NZD/JPY pops up on the radar this week after fresh developments from this week’s central bank updates, making this bullish technical setup one to watch for a potential longer-term position.

Bullish Reversal Ahead for NZD/JPY?

NZD/JPY Daily Forex Chart
NZD/JPY Daily Forex Chart

We just got the latest monetary policy statement from the Reserve Bank of New Zealand earlier in the Asia trading session, and it looks like it was a bullish event for the Kiwi as the RBNZ voted to end the Large Scale Asset Purchase program by July 23.

Expectations now are that the RBNZ will further tighten monetary policy to combat an overheating economy in New Zealand, possibly with a rate hike in November of this year.

This could be priced in at the moment after today’s pop in the Kiwi but could draw in further buying pressure for the next few months if NZ’s economic updates do not show inflation cooling by then.

NZD may have some legs higher against the majors in the medium-term, which makes NZD/JPY a pair to watch for a potential swing position.

We think this could be a good market to gain long Kiwi exposure, especially after we just heard from Fed Chair Powell today, re-iterating that the Fed still saw full employment and stable prices “ways off.” 

This seems to have brought positive risk sentiment back in the forex market for now, which may be bearish for the Japanese yen in the short term.

So, we’re watching NZD/JPY for a potential longer-term long position, especially now that we see a bullish divergence formation on the daily chart above. This is forming as the pair retests and finding support at the strong area of interest around the 75.00 – 76.00 range (a broken previous resistance area).

If risk sentiment continues to swing back to positive (we’ll likely need to see covid-19 data improve for traders to get less risk-averse) to get more bullish, and in that scenario, scaling in down to the 75.00 handle makes sense as an entry move.

Of course, for the more conservative, you can wait for a break above the falling ‘highs’ pattern before considering a long position.  While this improves the odds of an uptrend sticking, this reduces the potential return-on-risk. Just something to think about when structuring a trade.

What do you all think?  Is NZD/JPY a buy based on the latest fundies and technical setup? Let me know in the comments section below!

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