We are heading into the close of the week with a risk trends tempered (but not turned off of their long-term trends) and price action falling back into the middle of tight ranges (also in the midst of dominant trends). NZDJPY is a victim of both scenarios.
[B]Why Would NZDJPY Hold a Range?
• [U]Levels to Watch:[/U]
-Range Top: 61.35 (Double Top, Fib)
-Range Bottom: 60.00 (Trend, Fib, Pivot)[/B]
• Heading into the end of the week, we have seen risk influences over the market
settle. This is a remarkable contrast to how we started things off on Monday after
the G8 rhetoric was priced into the market. This pair is fundamentally unique.
Neither the yen nor kiwi dollar typically respond to standard economic indicators;
and both are highly sensitive to general sentiment. However, the Japanese BSI
and New Zealand GDP numbers may supply volatility.
• NZDJPY traded one congestion pattern for another this month. The ascending
wedge formation that was charging into 60 finally broke at the beginning of this
month; but the follow through has been lacking. A double top has stalled bullish
intentions; but support seems more robust on this now notable pivot and fib
confluence.
[I][B]Suggested Strategy[/B][/I][B]
• [U]Long[/U]: Half-sized entry orders will be placed at 60.45, set close to hard support.
• [U]Stop[/U]: An initial stop of 59.45 intentionally wide to cover the pivot zone going
back to April. To secure profit, move the stop on the second lot to breakeven
when the first target hits.
[/B][B]• [U]Target[/U]: [/B][B]The first objective equals risk (100) at 61.45 and the second target will
be 62.45.[/B]
[B]Trading Tip – We are heading into the close of the week with a risk trends tempered (but not turned off of their long-term trends) and price action falling back into the middle of tight ranges (also in the midst of dominant trends). NZDJPY is a victim of both scenarios. This pair is highly susceptible to shifts in risk appetite as the Japanese yen is still considered one of the market’s primary safe haven currencies (despite its severe economic troubles) while the kiwi dollar is a high-yielder with a deteriorating economic and financial outlook. Looking ahead to next week, it is difficult to tell what could spark volatility or revive a trend in risk trends given the few major events on the docket. However, there are a few domestic indicators that could potentially drive a breakout from this relatively tight range – particularly the New Zealand current account and GDP figures. To avoid this excessive risk, we are looking to trade with the general bullish bias, have set a relatively wide stop, reduced position size and will cancel all open orders by mid-US session Tuesday. If spot tops 63.25 before we are entered, we will similarly remove our orders as the market’s pattern will have changed. [/B]
[B]Event Risk for New Zealand and Japan[/B]
[B]New Zealand [/B]– Usually, the New Zealand dollar is the ultimate risk currency. This high yielder still enjoys a significant premium over most of its counterparts; but the outlook is certainly dovish. What’s more, the island nation’s economic and financial health is deteriorating quickly. These conditions may actually leverage the currency’s response to sentiment changes. When sentiment improves, it would help alleviate some of the pressure from the export and capital flow-dependent economy. On the other hand, global pessimism would send the nation deeper into recession and accelerate rates cuts. However, this may not be the primary source of volatility next week. In an unusual twist, the kiwi docket is perhaps the most fundamentally packed. The data flow begins mid-week with the Westpac Consumer Confidence survey for the second quarter. A critical gauge of consumer spending, this reading will benchmark the health of domestic sources of demand. On the same day, the first quarter current account balance will measure the other critical component of growth – trade. Top event risk is the GDP report for the first three months of the year.
[B]Japan [/B]– There is an unusually full event calendar for the coming week in Japan. The pinnacle for market moving potential comes in the usually quiet Monday morning session. The BSI sentiment surveys for the second quarter are critical growth readings for a key component of output in the world’s second largest economy. There are other top level indicators scheduled throughout the coming week. Trade figures, inflation, retail sales and industrial production will offer a timely and broad view of the same data the BoJ is monitoring for its policy decision and economic forecasts. Aside from this data, yen traders will have to keep a constant watch over risk trends. There are no definitive releases that can promise volatility; but this underlying them is ever present and constantly in flux.
[B]Data for June 21 – June 28[/B]
[B][/B]
[B]Data for June 21 - June 28[/B]
[B]Date (GMT)[/B]
[B]New Zealand Economic Data[/B]
[B][/B]
[B]Date (GMT)[/B]
[B]Japan Economic Data[/B]
Jun 24
Westpac Consumer Confidence (2Q)
[B][/B]
Jun 21
BSI Large Manufacturing (2Q)
Jun 24
Current Account Balance (1Q)
[B][/B]
Jun 23
Merchandise Trade Balance (MAY)
Jun 25
GDP (1Q)
[B][/B]
Jun 25
National CPI (MAY)
Jun 28
Trade Balance (MAY)
[B][/B]
Jun 28
Industrial Production (May P)