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NZD/JPY’s Range Creates Short Opportunity

NZD/JPY’s Range Creates Short Opportunity

2010-03-17 20:18:00
John Rivera, Currency Analyst

How stable is the NZD/JPY Range?
 Levels to Watch:
-Range Top:       65.00 (Range, Pivot)
-Range Bottom: 61.00 (Fibo, Range, Pivot)
• Building optimism has benefitted high yielders and been a detriment to the yen, The Asian currency’s status as a finding currency creates a negative correlation with risky assets and as equity markets continue to rise its crosses have followed. However, risk winds remain fickle and a change of direction could be around the corner.
• The sharp retracement following the test of resistance at 65.00 could be a sign that the sentiment has shifted. Additionally, the pair trading back below 64.59-50.0% Fibo of 68.70-60.49 re-establishes the level as a potential barrier. We could end up seeing an ultimate test of 65.56-61.8% Fibo before the expected reversal.
Suggested Strategy
• Short: Place an entry at 63.40-3/16 low and just above 38.2% Fibo, as a break below could lead to accelerated losses.
• Stop: Set the stop to 64.40 for a 100 pips in risk.
• Target: The first target is 62.00 approximately 1.5 times risk followed by 61.05-3/5 low.

Trading Tip – Risk appetite continues to defy the odds and further support for the high yielding “Kiwi” isn’t out of the question. Greece’s troubles appear to be behind them which have brought a sense of relief to the market. Improving fundamentals-UK jobless claims unexpectedly fell- continue to point toward continues growth. Ad in central banks willingness to keep rates at record low levels and the short-term prospects for growth remain firm. However, policy makers are reluctant to begin tightening as they continue to see downside risks which may reveal themselves and derail the bullish trend. Therefore, failure at 65.00 isn’t a clear enough sign that a reversal is in order, which is why and am waiting fro a break below support levels to initiate a short position. A more risk adverse investor could wait until the Fibo level is broken and forgo potential profits for a safer bet.

Event Risk for New Zealand and Japan

New Zealand – There is only second tire release remaining for the rest of the week which will present little in the form of event risk. However, next week’s GDP report will have significant market moving potential as the growth figures will show if the antipodes nations’ recovery is on a robust pace. The “Kiwi” has benefitted from its counterpart the RBA raising rates which has boosted its own yield expectations. However, if it’s pace of recovery doesn’t match then we may see a sharp reversal as markets will push out the horizon for an expected rate hike.

Japan – The BoJ revealed very little in their post rate decision remarks expect that they weren’t adding any quantitative easing measures at this time. The policy decision may have been the only fundamental release which has any market moving potential. Therefore upcoming fundamental data will could very little influence on price action. The quarterly reading of BSI large manufacturing has the most potential as it is a key gauge of economic activity with the BoJ monthly report, industry activity index and trade balance providing insight onto the state of the economy.


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