Bets for RBNZ Rate-Cut Undermines Bullish NZD/USD Outlook

Talking Points:

- USD/JPY Defines Near-Term Range Ahead of BoJ Minutes, U.S. Presidential Election.

- Bets for RBNZ Rate-Cut Undermines NZD/USD Outlook; End of Easing-Cycle Approaching?

USD/JPY Daily

Chart - Created Using Trading View

• USD/JPY may face range-bound prices going into the week ahead as the pullback from the 105.40 (50% retracement) hurdle appears to be losing steam ahead of near-term support around 102.70 (38.2% expansion); will keep a close eye on the ongoing divergence between price & the Relative Strength Index (RSI) as the oscillator preserves the bullish formation carried over from the summer months.
• With market attention turning to the U.S. Presidential election, the Bank of Japan (BoJ) Minutes may spark a limited market reaction as Governor Haruhiko Kuroda and Co. look poised to endorse a wait-and-see approach at the last 2016 interest-rate decision on December 20, but the Japanese Yen continue to outperform against its major counterparts should the key developments coming out of the world’s largest economy undermine the outlook for global growth.
• A further deterioration in risk appetite may largely benefit the Yen as Japan returns to its historical role as a net-lender to the world economy, and the failure to preserve the upward trend from September may open up the next downside target around 100.70 (50% retracement) to 101.20 (50% expansion) followed by the August low (99.54).

NZD/USD Daily

Chart - Created Using Trading View

• Broader outlook for NZD/USD remains bullish, with the pair at risk for a further advance ahead of the Reserve Bank of New Zealand’s (RBNZ) last-2016 interest rate decision on November 10 as the exchange rate breaks out of the downward trend carried over from September; may see the near-term advance negate the risk for a head-and-shoulders formation as the pair takes out the July high (0.7325) and carves a near-term series of higher-lows.
• According to a Bloomberg News survey, all of the 15 economists polled forecast the RBNZ to cut the official cash rate by 25bp to a fresh record-low of 1.75%, but the New Zealand dollar may ultimately face a whipsaw-like reaction should Governor Graeme Wheeler and Co. highlight a material shift in the monetary policy outlook; may see NZD/USD stage a larger advance should the central bank look to conclude its easing-cycle ahead of 2017.
• Need a break/close above the Fibonacci overlap around 0.7330 (38.2% retracement) to 0.7350 (61.8% expansion) to negate the risk of a near-term top, with the next topside region of interest coming around 0.7460 (78.6% expansion) to 0.7530 (78.6% retracement) along with the 2016-high at 0.7485.

• The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long USD/JPY since July 21, with the ratio hitting a 2016-extreme of +6.04 in September, while traders have been net-short NZD/USD since October 28.
• USD/JPY SSI sits at +2.46 as 71% of traders are long, with short positions 45.3% lower from the previous week as open interest stands 2.9% below the monthly average.
• NZD/USD SSI sits at -2.33 as 30% of traders are long, with short positions 43.9% higher from the previous week, while open interests stands 1.9% above the monthly average.
• The bearish NZD/USD sentiment may push the SSI ratio back towards the 2016-extreme of -3.41 seen in September.

Why and how do we use the SSI in trading? View our video and download the free indicator here

Click Here for the DailyFX Calendar

Get our top trading opportunities of 2016 HERE

Read More:

S&P 500: Election Volatility and Short-term Trading Levels

Forex Technical Focus: AUD/JPY and a Big Confluence

USD/JPY Rally Vulnerable to Wait-and-See BoJ, 7 to 3 FOMC Split

NZD/USD at Risk for Further Losses Heading into U.S. 3Q GDP

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.