NZDJPY has been trending lower on its 4-hour time frame but is currently in the middle of a correction. Price has retreated to the 50% Fibonacci retracement level on the latest selloff and might be ready to resume its drop.
A small head and shoulders pattern can be seen on the 50% Fib, with price gearing up to break below the neckline at the 80.00 major psychological mark. If that happens, the pair could fall by around 300 pips or the same height as the formation. Stronger bearish momentum could take NZDJPY down to the yearly lows at 74.50.
The 100 SMA is above the 200 SMA, though, indicating that the path of least resistance is to the downside. Stochastic is nearing the oversold area, which suggests a potential return in buying pressure, while RSI is still heading south.
NZDJPY Fundamental Factors
Earlier today, New Zealand printed a downbeat employment report, revealing that hiring fell by 0.4% in Q3. Analysts had expected to see a 0.4% increase in hiring. Still, the jobless rate came in line with expectations of a climb from 5.9% to 6.0%.
Prior to this, the Global Dairy Trade auction showed a 7.4% drop in prices, following the previous 3.2% drop. This could spur another downgrade in milk payout forecasts by Fonterra, followed by another interest rate cut by the RBNZ.
As for the Japanese yen, data from Japan has also been mostly weaker than expected but the BOJ hasn’t confirmed any shift to a dovish bias. Risk aversion also seems to favor the lower-yielding Japanese yen versus the higher-yielding New Zealand dollar.
Other event risks for this trade include the release of the BOJ meeting minutes later on in the week, as this could reveal if policymakers are starting to shift their bias or not. The US NFP report due on Friday could also have a strong impact on market sentiment, with downbeat data likely to favor the yen as well.