NZD/JPY’s uptrend is still evident on its 4-hour time frame, despite the sharp selloff that took place a few weeks back. This drop was spurred by a decline in dairy exports and milk prices, leading to speculation that growth in New Zealand could slow down.
However, the ongoing trend is intact and it appears that NZD/JPY merely made a correction to the Fibonacci retracement levels. Price has already bounced off the 38.2% Fibonacci retracement level, which coincides with a former resistance area and looks ready for more gains.
A deeper corrective wave pullback could reach until the 61.8% Fibonacci retracement level, which is just a few pips above the 84.00 major psychological support.
NZD/JPY Wave Pattern Analysis
A rally could take NZD/JPY up to its previous highs near the 90.00 major psychological level. A break past this resistance zone could confirm the stronger uptrend, as traders price in expectations of an interest rate hike from the RBNZ this week.
Recall that analysts from Bloomberg and other institutions recently announced that they are expecting to see a 0.25% rate hike from the RBNZ in their rate statement this week. This follows relatively strong data from New Zealand, with inflation not so much of a concern for policymakers.
Take note though that with expectations like these, the potential for a market disappointment is high. This means that no move from the RBNZ could lead to a massive Kiwi selloff as traders assess why the New Zealand central bank is no longer pushing through with its very hawkish bias. Remarks indicating that the central bank is concerned about weakening dairy exports could lead to an unwinding of Kiwi gains, which might set off a longer-term downtrend for NZD/JPY.
A break below the 61.8% Fibonacci retracement level would suggest that the downward move is no longer a corrective wave but rather the start of a reversal.
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