Since the Japanese government is looking to dole out economic stimulus and the RBNZ intends to keep rates on hold for a while, I’m thinking NZD/JPY could be in for some gains. Earlier this week, Japan’s PM Shinzo Abe instructed his team to prepare an economic aid package to stoke growth, inflation, and infrastructure spending as part of his “Abenomics” program.
This led to a sharp yen selloff as market participants predicted that the BOJ might be gearing up for additional monetary easing as well. These speculations could stay in play leading up to the actual BOJ decision by the end of this month.
That’s why I’m thinking the longer-term uptrend on NZD/JPY could resume, as price already bounced off the 61.8% Fib and area of interest around the 70.00-71.00 levels. In addition, stochastic has formed higher lows while price made lower highs, creating a bullish divergence right on the support area.
I decided to go long at market (74.75) with a wide 600-pip stop below the 70.00 major psychological level and slightly beyond the pair’s weekly ATR. I’ve set my ultimate profit target near the swing high of 94.00 but I plan on locking some gains along the way by closing partially or trailing my stop once price gains more bullish momentum.
There are no major reports up for release from New Zealand for the rest of this week, but I’ll be keeping close tabs on data from Australia and China since these nations are its main trade buddies. As always, I’ll also be on the lookout for market updates that could influence sentiment since the higher-yielding Kiwi has been pretty sensitive to risk flows.
Here’s what I got:
Long NZD/JPY at market (74.75), stop loss at 68.75, profit target at 93.75. I’ve risked 0.5% of my account on this setup and I’m going for a 3:1 return-on-risk, but I’m likely to make risk adjustments along the way so stay tuned to my Twitter updates!
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