NZDJPY Forex Forecast – Long-Term Correction

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160701_nzdjpyNZDJPY has been edging higher recently, pulling up from its sharp dive. Using the Fib tool on the latest swing high and low on the daily time frame shows that price is currently testing the 50% retracement level, which lines up with a broken long-term support area around the 73.00 major psychological mark.
If this level holds as resistance, price could make its way back down to the swing low around the 69.00 handle. The 100 SMA is below the 200 SMA on this time frame so the path of least resistance is to the downside. Also, the gap between the moving averages is widening, indicating strengthening bearish pressure. A larger correction could last until the 61.8% Fib, which is close to the 100 SMA dynamic inflection point.
Stochastic is on middle ground, barely offering any strong directional clues at the moment. Further gains past the 61.8% Fib or 75.00 area could signal that a reversal is starting.
Traders appear to be taking profits off their post-Brexit short trades, especially since central bankers showed signs of dovishness. The RBNZ released a Statement of Intent earlier in the week, mentioning that they are not looking to cut rates for fear of stoking house prices further but warned that it could intervene in the forex market.
As for the yen, BOJ policymakers and government officials also appear to be on intervention watch, as persistent yen strength could be damaging to the Japanese economy. Data from Japan came in mostly in line with expectations today, with the Tokyo core CPI showing a 0.5% drop in price levels and the national core CPI showing a 0.4% decline. Household spending was slightly better than expected with a 1.1% year-over-year drop versus the projected 1.3% reduction.
Japan’s final manufacturing PMI and consumer confidence index are still up for release later today. China is set to print its manufacturing and non-manufacturing PMI data as well, likely affecting market sentiment and Kiwi price action.
To contact the reporter of the story: Samuel Rae at samuel@forexminute.com
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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.