Last night’s Nikkei sell-off has boosted the Japanese Yen across the board, sending yen pairs lower during the overnight session. This is especially true against the New Zealand dollar as NZD/JPY has fallen 1.4% so far today. The New Zealand dollar is certainly contributing to the weakness in NZD/JPY after a speech by RBNZ Governor Graeme Wheeler sent Kiwi bulls scurrying for the exits. Wheeler called the New Zealand Dollar “overvalued” which is a major buzzword for forex traders, and one that usually hints at rate cuts or some other form of easing to come. The statement was perhaps made more significant by the fact that the speech Wheeler was delivering did not really require him to opine on the value of the New Zealand dollar. Whether or not the RBNZ actually takes further steps to weaken the kiwi remains to be seen, but the NZD sell-off and the JPY strength has put NZD/JPY is a very interesting position going into the second half of the week.
The pair is currently about 50 pips above a significant daily trend line and about 110 pips from the very significant 200 day EMA. You can see from the chart below that the 200 day EMA has been very supportive of NZD/JPY lately, and a breach of that level could signal a significant trend switch.
There are two different ways to play NZD/JPY here. The first would be to buy as close to the TL and EMA confluence as possible, using a daily close below the 200 day EMA as a stop, and the second would be to wait and play a breakdown, should the pair breach that 200 day EMA. A bounce from the support levels would target a move back toward 78.60 (the major descending trend line) whereas a breakdown could target as low at 68.00. However you choose to play it, NZD/JPY is in a very interesting position and could present a very nice trading opportunity.
Written by: Liam McMahon, Currency Strategist – GlobalFxClub.com
