I’m seeing another potential long yen trade with NZD/JPY testing a key resistance level prior to the RBNZ interest rate decision this week. Think the ceiling will hold?
NZD/JPY Trade Idea
On the pair’s daily time frame, it can be seen that price is testing the long-term area of interest at the 83.50 minor psychological level which has kept gains in check since mid-2015. If it continues to act as a ceiling, NZD/JPY could be forced to turn back down towards support at 73.00 or at least until the middle of the range around 78.00. Stochastic is heading south on this time frame, suggesting that Kiwi bears are in control of price action.
Zooming in to the 4-hour time frame reveals that the pair is in the middle of forming a double top pattern. Once completed, this would be a classic reversal signal and a break below the neckline around 80.50-81.00 could be enough to confirm that a selloff is underway. The chart pattern is approximately 300 pips tall so the resulting drop could be of the same size.
Forex Gump mentioned that the RBNZ interest rate statement is coming up and, even though no actual policy changes are expected this time, Governor Graeme Wheeler could grab the opportunity to jawbone the Kiwi once more. Keep in mind that he already discussed how the currency’s appreciation generated negative inflation in the tradeables sector in their earlier statement, yet the Kiwi still kept climbing against its counterparts over the last couple of months.
Meanwhile, the Japanese yen has been able to benefit from the run in risk aversion and taken advantage of dollar weakness at the same time. Economic reports from Japan have shown a few bright spots in consumer spending and sentiment recently while the BOJ decided to sit on its hands during their latest policy decision. Moving forward, market sentiment could continue to support the yen as traders also veer away from the uncertainty surrounding the U.S. dollar.
I haven’t set any entry orders yet since I plan on waiting for a test of the neckline and for the RBNZ statement to pass. If Kiwi weakness is seen, I’m looking to short around 80.25 with a stop 25 pips past the 83.50 resistance and a target near 73.00 for a 2:1 trade. Don’t forget to check out our risk disclosure if you’re trading this one, too!
See also: Q4 2016 Trading Performance Review
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