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Don’t look now but New Zealand just printed yet another quarterly CPI miss and this pair seems to be done with its breakout correction. Time to short?

NZD/JPY Trade Idea

This pair tore through the long-term ascending trend line a few months back, indicating that a downtrend may be underway. Price has since pulled up for a retest of the broken trend line support, which is now holding as resistance close to the 61.8% retracement level.

In addition, a new descending trend line has been forming and price is also testing this potential ceiling. Confluence, baby!

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

Stochastic is heading lower from the overbought region, suggesting a likely pickup in bearish pressure. If I put my one good eye close enough to the screen, I can also spot a bearish divergence with the oscillating making slightly higher highs and price drawing lower highs.

In terms of fundamentals, the latest NZ CPI miss could be enough to draw bears back in since this could further delay the RBNZ from hiking interest rates. Keep in mind that New Zealand’s central bank is already lagging behind the pack when it comes to shifting to a more hawkish stance.

On the flip side, the BOJ seems to be gradually moving towards a less aggressive approach in easing. Recall that the central bank made some adjustments to its long-term bond purchases earlier this month, leading to a sharp kick higher for the yen. To top it off, their latest policy statement also contained more upbeat vibes.

Besides, the yen is also able to take advantage of dollar weakness as risk-averse traders appear to prefer the Japanese currency while the scrilla deals with a few geopolitical risks.

What’s giving me second thoughts about shorting this pair, though, is the negative carry and the fact that risk appetite has been in play for quite some time.

I’m going to wait for a bit more momentum below the 80.00 major psychological level before hopping in a short position, setting my sights on the swing low as my profit target and placing my stop past the swing high.

Care to share your thoughts?

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