NZD/JPY Coils Below Key Resistance

Since RBNZ surprised markets with a 50 bps cut this month, NZD/JPY has coiled below key resistance as it builds up energy for its next directional move. How prices react around resistance could be the key for way it breaks next.

Whilst we see the area around 69.30 as pivotal, we are open to a directional move either side of it. Technically, the structure is firmly bearish but it could be argued that we’re in need of mean reversion before its next leg lower. That said, ongoing trade wars are likely to remain a headwind for commodity currencies such as NZD, CAD and AUD, so for now any upside is likely to be corrective in our view.

However, if markets are to revert to risk-on, NZD/JPY could be a prime candidate for a rebound. Further, markets aren’t expecting another rate from RBNZ any time soon, as we have to look ahead one full year before OIS markets fully price in another 25-bps cut. Still, if data picks up, it could provide a tailwind and add to the argument for a bounce, even if it’s not strong enough to justify a trend reversal.

Either way, how prices react below key resistance remains key for its next directional break.

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