Kiwi sellers have been taking charge ever since the RBNZ opened up to rate cuts. Is that still enough to push NZD/JPY past support?
NZD/JPY Breaking Lower?
A couple of weeks ago, sentiment shifted to negative on the New Zealand dollar after the RBNZ went from an optimistic tone in February to a negative one in their March statement on the economy. It was negative enough to open them up to the possibility of a 25 basis-point cut, potentially as early as August. Since then, the Kiwi has been met with a wall of sellers on every bounce, and now we’re seeing it potentially ready to break important support areas.
On NZD/JPY, the 75.00 major psychological area has been one of those important support levels, and after three previous retests and holds, it looks like it’s about to break. Looking forward, there are quite a few top tier New Zealand events (most notable are the upcoming New Zealand CPI and employment data) that could add to the downside momentum, while Japan adds potential volatility with the Bank of Japan’s latest monetary policy decision as well. Overall, I think the New Zealand events will outweigh the BOJ meeting (since it is usually dud), and given the general trend lower in NZ data, I think they could be more helpful than hurtful to a short position.
With that said, I’m shorting NZD/JPY with a nibbler position in case this is not a breakout, and my max stop will be a little bit more than the weekly ATR of around 150 pips to give the trade room to break. My target will be the 2018 lows, which makes for an attractive starting potential return-on-risk ratio. Here’s what I’m doing:
Short a half position NZD/JPY at 75.00, max stop at 76.75, max target at 72.00
I’ll be risking only 0.50% of my account to start and my potential max return-on-risk is about 1.71 for now. Of course, I’ll look to add further to the position or adjust quickly (i.e., cancel orders, close trade, reverse trade) depending on how the top tier events from New Zealand and Japan turn out, or if there is a big unexpected shift in risk sentiment within the next few weeks.
That’s it for now. Stay tuned and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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