The less-hawkish RBNZ spurred a massive Kiwi selloff earlier today!
But could this be a chance to hop in the NZD/JPY rally at better levels?
Here are the potential support zones I’m watching on the 4-hour time frame.
NZD/JPY 4-hour Forex Chart by TradingView
In today’s Asian session, the Reserve Bank of New Zealand decided to keep rates unchanged at 5.50% as widely expected.
Although the central bank didn’t really open the door for rate cuts, what drew Kiwi bears out was the downgraded rate forecasts for later this year and for next year. This ultimately crushed expectations of any tightening in the coming months, even as inflation remains elevated.
It also didn’t help that Australia’s quarterly CPI fell short of estimates earlier, also dashing hopes of RBA rate hikes and weighing on risk-taking so far.
Remember that directional biases and volatility conditions in market price are typically driven by fundamentals. If you haven’t yet done your fundie homework on the Kiwi and the Japanese yen, then it’s time to check out the economic calendar and stay updated on daily fundamental news!
NZD/JPY has retreated from its highs around 93.40 and is now closing in on the 38.2% Fibonacci retracement level near the 92.00 major psychological mark.
A larger correction could take the pair down to the 50% Fib that lines up with S2 (91.36) or to the 61.8% level closer to the rising trend line that’s been holding since December last year.
Technical indicators suggest that the uptrend is more likely to resume than to reverse, as the 100 SMA is above the 200 SMA and coincides with the 38.2% Fib to add to its strength as a floor.
In addition, Stochastic is hanging out near the oversold region to signal weakening bearish pressure and a potential return in upside momentum soon. In that case, if any of the Fibs hold, NZD/JPY might set its sights back on the swing high or even fresh upside targets at R1 (93.85) then R2 (94.42).
Although there are no major catalysts lined up from New Zealand and Japan for the rest of the week, there are still several potential market-movers to keep an eye out for, including the U.S. preliminary GDP reading and the core PCE price index, that could impact overall risk sentiment.
Risk rallies might revive demand for the higher-yielding Kiwi, especially if China’s official PMI figures beat estimates and reassure investors that all is well in the global economy.
Do you think the uptrend on NZD/JPY might carry on?