NZD/JPY Technicals – Long-term Bulls vs Short-term Bears

Price recovered significantly after the fall post dovish RBNZ rate decision. Kiwi has since stabilized and NZD/JPY is once again trading close to 79.0, in part due to Yen’s weakening after the confirmation of Kuroda, Nakaso and Iwata into Bank of Japan office.

Hourly Chart

The 79.0 support turned resistance continue to weigh down on bullish efforts. Though price was never truly bearish to begin with due to recent lows unable to test the lows of last Friday, current setup fails to invalidate the downtrend from 12th March peak and the possibility to test 78.5 and below remains open. Stochastic is agreeable to this scenario with readings peaking, underlying the bearish intention, though interim support could still be found closer to 78.70 which is the lower end of current consolidation channel.

Daily Chart

Daily chart is teetering on a bearish breakout after price failed to form a distinct new top with the recovery from 28th Feb. Similar to hourly chart, Stochastic readings agrees with a bearish cycle scenario though price may also find interim support via the 77 – 79.5 consolidation found during most part of Feb trading. Despite the bearish breakout possibility, price may still continue straddling the the rising trendline higher as it did back in early March as current uptrend remains in play. A stronger bearish outcome may appear if price breaks below 76.0/ Swing low on 28th Feb which will also form a double top in the process. However, it is likely that Stochastic readings may reach Oversold by then depending on the rate of bearish momentum (if any).

There are good reasons why either currency may still strengthen. NZD is still regarded as investment currency due to the higher interest rates compared to the rest of the developed countries. In the recent sovereign bond issuance, long term bonds have significantly high bid-cover ratios with 6.41 and 7.00 for 2019 and 2023 maturity respectively. The demand for NZD remains high, which will support NZD against any dips. On the other hand, JPY has suffered significant weakness since Sep 2012, and may start to strengthen as rumors/myths/speculation of BOJ’s major intervention look set to be unveiled. No matter how big the latest stimulus package may be (expected to be announce in April’s meeting), there will bound to be traders disappointed, and we could eventually see JPY strengthening after the announcement in a typical “buy rumor sell news” fashion – not unlike how USD strengthened post QE3 announcement back in Sep. Also, as Japan fiscal year draws to a close, the infamous Yen repatriation will start which will also strengthen the Yen significantly. As such, expect strong volatility in NZD/JPY in the weeks to come and price may simply trade sideways until clear trend emerges.

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