Significance of the levels 83,5 and 86,5 for the currency pair of NZDJPY gets confirmed again. In the beginning of July the level of 83,5 was supportive for the development of the upward movement to the flat upper limit of 86,5. And now from the level of 86,5 the price turns downward again.
The NZDJPY currency pair movement within the flat without a pronounced trend can continue. The following factors don’t give the New Zealand dollar the opportunity to set a trend:
• Towards the rise – the key interest rate that already has gained a significant weight (last week it reached 2,5%)
• Towards the fall – the growing trade balance deficit and riskier character of New Zealand's currency in comparison to the yen.
For the Japanese currency the picture is almost the opposite:
• The world economic downturn works towards the yen’s stability (however, the US dollar looks more attractive as the safe haven currency)
• The main factor of the Japanese currency’s weakness – is the ultra-soft monetary policy of the Bank of Japan. In fact, the Japanese financial regulator is the one among other central banks of the developed countries that still hasn’t embarked on the tightening of the monetary policy after the rise of the ECB’s key interest rate yesterday.
While none of the aforementioned factors hasn’t become dominant yet, the flat of NZDJPY stands a good chance of continuing. After reaching the flat upper limit of 86,5 the signals of downtrend reversal and further movement to the level of 83,5 have formed:
• The “shooting star” pattern in the chart which got confirmed yesterday;
• The blue line of the Stochastic indicator crossed the red line downward – the signal to sell
The NZDJPY, as almost all of the other world currencies, can get a noticeable impulse next week after the Fed meeting results announcement on July 27. For risk reduction it may be reasonable to delay the open positions till Wednesday, but in that case there is a high possibility of missing a significant part of the price movement. Traders have to make the decision relying on their personal attitude towards the prospect of high volatility.
The following trading strategy option can be suggested:
Sell NZDJPY in the range of 85,5 - 86. Take profit – 83,5. Stop loss – 86,5.
Traders can also use the Trailing stop instead of the fixed Stop loss at their disposal.