NZD - JPY: Strong Bearish Signals
1- New Zealand Economy
Let first look at the economic data from last month. Here are positive and negative notes that have had an impact on NZDJPY forex trading strategies:
- New Zealand’s Q3 2015 GDP grew faster than Q2
- New Zealand economy seems to be doing well enough
- Businesses remain rather optimistic
- New Zealand’s annual GDP reading has been slowing down
- New Zealand has a rather severe inflation problem
- Kiwi's strength end of 2015 made imports relatively cheap, inflicting broad deflationary pressure on New Zealand’s economy
- Labor force participation rate is declining
- Wage growth is very weak
Smash! With negative stuff outweighing the upbeat data, the Reserve Bank of New Zealand (RBNZ) seems to have been justified in cutting rates. Especially since most of the negative data could affect inflation down the road.
After RBNZ Graeme Wheeler’s jawboned the Kiwi, he said “a decline would be appropriate” which threats further rate cuts.
This week on New Zealand economy we are awaiting the Global Dairy Price Index (GDT) of Tuesday followed by its quarterly GDP on Wednesday at 9:45 PM GMT. These could further impact the Kiwi in a negative way if the numbers are printed lower than expected.
2- Japan Economy
Last month Bank of Japan (BOJ) caused a few spikes in Yen forex dance floor. It surprisingly cut its benchmark interest rate. And finally joined the ECB and SNB in implementing a negative interest rate policy. BOJ Governor Kuroda cited worries over inflation, China, and the global economy as reasons for their aggressive moves.
Today, BOJ removed language from its statement that it would cut interest rates further into negative territory if needed. In other words, they offered no hints of further stimulus expansion. With that, any hopes for weaker Yen was also removed. So Ms. Japanese Yen got even stronger versus her major dancing partners. This gave us further clues about our NZDJPY forex trading strategies March 2016.
3- NZD/JPY Technical Analysis
Big Picture Monthly Chart: The pair is currently right in the middle of the ichimoku cloud. It is testing the 38% Fibonacci retracement level at 74.70. March candlestick appears to have lost its bullish momentum. The pair might be forming a saucer topchart pattern, moving towards lows of 2012.
Daily Chart Market Sentiment: The pair remains below the ichimoku cloud. The bearish sentiment is more obvious in the shorter time frame. The 74.70 level seems to be a great barrier to break through.
4- NZDJPY Trading Strategies
As a savvy Invest Diva student you should already be able to put the two and two together and come up with your own NZDJPY Forex Trading Strategies. But for our newbies and first time visitors, let me elaborate.
Based on fundamental analysis, we can see relatively heavier bearish sings for NZD. On the other hand, JPY seems to continue with its strength. So far this is the recipe for a bearish outlook for NZD/JPY, because the strong currency in the pair (JPY) is quoted second.
Bearish scenario: The key level to keep an eye on is 74.70. A break below this level could open doors for further drops
Bullish scenario: We would need a 1) strong data from New Zealand Economy, and 2) a stimulus, rate cut or QE from Japan economy at the very least. From a technical point of view, the pair needs to break above the pivot level of 78.50
Summary: There are a number of factors that back up a bearish scenario for NZD/JPY. However the downside of this outlook is the negative roll over fee for a sell NZD/JPY position. This would make it riskier for long term traders to hold their position until they hit the bearish target at 69. If you have any doubts on how to apply these strategies to your stocks and forex portfolio, come visit me at an investment coaching session. Book soon as we are running out of spots.
Here are the important NZD/JPY levels to keep an eye on:
I'm also looking at Euro, USD and GBP crosses this week ahead of FOMC. Join me for an overview this week.