The world of trading waits for the central banks to ramp up their monetary tightening policies, which the RBNZ is very near the front of the queue, if not the actual front of the queue. The Bank of Japan (BoJ) is almost certainly at the back of that queue. Japan has done remarkably well to avoid a recession, but the yen is still likely to be the weaker of the currencies for some time to come unless we see a massive risk-off event.
NZDJPY Forex Analysis
This morning starts off with a risk-off feel following on from global macro events over the weekend. A lot of commentaries are on the failure of American foreign policy with regard to Afghanistan. But also, on the worse than expected economic data out of China. The Chinese have indicated that they are looking to plow money into Afghanistan if the Taliban can keep things from getting too out of control, which is a great illustration of how countries and groups of people can take advantage of a power shift, or vacuum. The uncertainty of everything that is going on in the world which still includes the Delta variant should result in more moves into safe havens like the Japanese yen and Swiss franc, as we see today. But this week also has a lot of new data points from Central Banks like the US Federal Reserve and the RBNZ.
The RBNZ is expected to be more Hawkish, and the NZD should appreciate that news. The outside risk is that the central bank decides the risk of the Delta variant is too much and that they need to keep an accommodative monetary policy for longer. But that is the outside bet. Generally, a central bank will give hints and explicit forward guidance many months ahead so things should go smoothly.
Japan 2Q21 GDP released today shows Japan avoided a technical recession by growing at 0.3% QoQ – after contracting 1% QoQ in 1Q21. Even with this positive news, the negatives outweigh any positives as the Delta variant runs rampant through Japan. The vaccination take-up in Japan is still very low and the weakening Chinese data does not give anyone any confidence.
Regardless of how bad things could stay in Japan, the retail traders on the ActivTrader platform are becoming ever more convinced that the New Zealand dollar should be weaker than the yen? 84% short is an extreme reading, so I am going to look for ways to fade that.
If we get a close above the swing low 76.878 formed on the 10th of August that would be a signal for me to look for a buy. As that would be a look below just to entice more of those retail traders into a short position, only to trap them. If they get their day in the sun and NZDJPY drops some more, the daily 200 exponential moving average would be the next most logical place to look for a long trade. I am wrong and the retail crowd is right if we see a clean break below 75.50 which then holds as resistance.