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NZDJPY: Downside Risk Remains Despite Recent Gains

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The NZDJPY has been a mess lately. There’s no other way to say it. But despite the somewhat incoherent price action over the past eight weeks, the pair remains near the top of my watch list for next week.

Why is that?

Partly because of the yen effect that is already playing out across the USDJPY, GBPJPY, and AUDJPY. Even the stubborn EURJPY is beginning to feel the impact of a stronger safe haven bid.

I’ve previously written about the way the yen pairs tend to follow each other as risk aversion intensifies. While we’re by no means in a full tilt risk off environment, it does appear that market participants are once again beginning to consider protection via the Japanese yen.

As mentioned above, we’ve already seen several yen pairs come off recent highs. However, the NZDJPY has been somewhat of a holdout. In fact, hours ago the pair reached fresh highs for the range that’s been intact since May 24th.

If the yen is indeed basing for a push higher as indicated by pairs like USDJPY and GBPJPY, the NZDJPY is trading at a premium, so shorts seem to make the most sense here. Also, the price action since mid-April appears corrective in relation to the decline that began in February.

But those are mere observations that don’t warrant a position just yet. Instead, I prefer watching for bearish price action from the 78.80 area. The region has capped several advances since May 25th and is attracting sellers once again today.

A more conservative and perhaps more prudent approach would be to wait for a daily close below the trend line that extends from the current 2017 low. The level was challenged following the May 17th selloff, but NZDJPY bulls managed to keep their heads above water on a daily closing basis.

In summary, I’m only interested in selling opportunities for now but not until I see bearish price action from 78.80 or a daily close below the April and May trend line near 77.60/80. A combination of the two could make for an attractive opportunity to pyramid into a short position.

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NZDJPY daily chart

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1 comment
Mimi says

Hi Justin, thanks for all your posts and analysis! I also want to sell this pair, but it may go a bit higher to 79.40/79.50 area before selling-off. Thanks for the heads-up and will watch this pair for sure this coming week.

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