NZD/JPY and Impact of Trump's TPP Withdrawal
Donald Trump took an executive action last Monday to pull the United States out of the Trans-Pacific Partnership (TPP), an agreement between Asian nations including Japan and New Zealand. What could this mean for forex traders in a long run? What is the NZDJPY TPP withdrawal impact? To answer this, we need to take an IDDA approach and analyze the situation from a fundamental, technical and market sentiment points of view.
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1- Fundamental Points
NZDJPY TPP Shenanigans:
- Many economists believe the TPP would provide significant benefits to all signatory nations. However, the benefits for Japan have been considered particularly significant thanks to provisions that would drive exports from Japan to America higher.
- Australia and New Zealand say they are hopeful of pressing ahead with the Trans-Pacific Partnership trade deal, despite America's formal withdrawal.
- Chinese President Xi Jinping said last week that he would defend globalization against populist forces that want to end free trade. Trump's TPP withdrawal could leave the door open for China to push its own brand of trade in a region that is home to many of the world's fastest-growing economies.
- China is the biggest trading buddy of Australia and New Zealand. So in case they actually move forward with TPP minus one, their economies could be under less pressure than that of Japan.
With this, there could be an interesting trading opportunities on NZDJPY TPP related developments.
Japan's Economy: Other than the TPP shenanigans, things are looking good for Japan so far. Their year-on-year GDP growth continues to accelerate.Their monthly reading for industrial output in November was the best in 8 months. The annual reading is a 32-month high. These will contribute positively to quarter-on-quarter and year-on-year GDP growth respectively. Trade during the Q4 months came out better when compared to the Q3 months. Also, November’s trade surplus was the biggest reading since March 2011.
On a negative note, core CPI (index for inflation) fell by -0.2%. That’s obviously bad, but that’s sit right in the middle of the BOJ’s forecast range of -0.3% – -0.1%, so it wasn't a big surprise. Consumer spending is more of mixed picture since total household spending jumped in October but slumped in November.
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New Zealand Economy: Kiwi economy is not too shabby either. Their trade balance came in better than expected and MUCH better than previous reading on Monday's Asian open. Their Consumer Price Index (CPI) rose on a quarterly basis, as prices rose by 1.4% from a year in Q4 2016. This falls right in the middle of RBNZ's 1.0% – 3.0% inflation rate target. This marked the fastest CPI since Q3 2014. Their housing-related prices continue to drive prices higher, which is only partially offset by declines in transport costs.
We have New Zealand's jobs data and BOJ's interest rate decision and press conference coming up on Tuesday. BoJ Monetary Policy Meeting Minutes will be released on Thursday. However the main catalyst in the markets could continue to be Trump-related developments.
2- Technical Points
NZDJPY TPP Impact: Trump's withdrawal unnerved investors on both sides of the Pacific. Both Japanese Yen and New Zealand Dollar saw gains as the news came out last week. However, while NZD continued its gains the rest of the week versus major counterparts, JPY started to lose momentum. This shows that NZD could fair better on the TPP discussions.
Daily Chart: The NZD/JPY pair reached our long-term bullish target of 83.26, while remaining above the daily Ichimoku cloud. A break above this level could open doors for further gains towards 76% Fibonacci retracement at 86.47.
If the pair is not able to break above 83.26, we could see a Double Top formation, reversing the current uptrend. The Neckline is set at 50% Fibonacci at 80.50.
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Monthly Chart: The monthly chart is currently signaling more bullish indication. In January the pair formed a bullish engulfing after a Doji. NZDJPY is now testing the upper band of the monthly Ichimoku cloud. This could be the make-or-break of the new saucer bottom cycle.
3- Market Sentiment
On one of the largest forex brokers in the US, only 38% of traders were long in NZD on Friday. Meanwhile, Short positions were 6.1% higher than Thursday.We use this as a contrarian indicator to price action, and the fact that the majority of traders are short gives signal that the NZD may continue higher. Stay tuned for more on market sentiment and NZDJPY TPP developments in our investing group.
NZDJPY Trading Strategy
Calculate your risk tolerance and use the levels mentioned below to create a strategy suitable for you. For further help, please visit our investing group.
Here are Invest Diva's calculations for important approximate levels for NZD/JPY to keep an eye on:
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.