A long-term FX trend continuation can take place on NZDJPY, as the pair is in the middle of a correction pattern on its daily chart. Price could retrace until the nearest 38.2% Fibonacci retracement level, which lines up with the 90.00 major psychological mark.
Stochastic is still headed lower though, indicating that Kiwi sellers are in control of price action. They could push for a lower retracement to the 50% Fibonacci level, which is in line with the broken resistance level around the 88.50-89.00 psychological levels. A deeper pullback could last until the 61.8% Fibonacci level, which is around the 87.50 minor psychological level.
FX Trend Outlook
A bounce off any of the Fibonacci retracement levels could be a sign that the FX trend higher will resume, possibly taking the pair back to the previous highs around the 94.00 major psychological resistance. Stronger buying momentum, which could be a result of a pickup in risk appetite, might lead to a break above those previous highs.
Event risks for this FX trend setup include the BOJ statement tomorrow. Data from the Japanese economy continues to disappoint as the country has fallen back in recession for Q3, prompting policymakers to consider further easing measures. Bear in mind though that the central bank has just surprised the markets with a fresh round of stimulus recently so they might decide to sit on their hands for now.
Any indication that they’re willing to ease further could lead to a sharp yen selloff and a resumption of the NZDJPY FX trend. On the other hand, if the BOJ declines to comment on future policy moves and insist that the economy is recovering moderately, NZDJPY could be in for more declines.
Earlier today, New Zealand reported a stronger than expected GDP reading of 1.0% for Q3 2014. This was higher than the projected 0.7% growth figure, making the path of least resistance to the upside for this pair.
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