NZDJPY: A Tempting Counterintuitive Turn

The North American morning has been a dusty desert of data today as virtually no interesting news nuggets have been released. That dearth of US and Canadian data has led most investors to pay more attention to events that happened in Asia and Europe instead of here near home; and that news wasn’t all that great. The main focus of the market’s ire was the surprisingly weak trade numbers posted by China, and some perplexing statements from Koichi Hamada, an advisor to Japanese Prime Minister Shino Abe, who mentioned that the USD/JPY at 105 is a comfortable level for the nation.

The combination of Chinese and Japanese news has derailed the rise of the NZD/JPY as this dual influence has pushed it lower. Since New Zealand is so heavily reliant on China as a nation to which it exports, the depressing trade numbers signal that demand from the Asian Giant is dwindling, and could negatively impact Kiwi export figures. In addition, Hamada’s comments have led Japanese Yen traders to, at least temporarily, take profit on some of their short yen positions. Both of these factors are weighing heavily on the NZD/JPY and have pushed it down to a very intriguing level where a potential bounce may occur; particularly if Chinese authorities take action or if Japanese officials make a counter-statement to Hamada’s.

The intriguing level I mention is based on a previous trend line as well as a Fibonacci level that meet up at approximately current levels. The rising trend goes back to mid-March, and has precipitated large bounces when approached, and the fact that it lines up with the 78.6% Fibonacci retracement of the April low to high makes it especially tempting. Potentially factoring in to this equation as well is the New Zealand Institute of Economic Research Business Confidence figures for the first quarter being released later this afternoon that could provide a spark for the NZD if it performs. With all the fundamental aspects of this pair pointing down at the moment though, it could be argued that a rally may be counterintuitive to the current dynamics. For that reason, if this level fails to spur a rise in this pair, it may not find support again until potentially 87.00 or lower.