NZDJPY Falls Apart
Another week draws to a close and once again it’s a question of celebrating wins or commiserating over losses. While our friends in the US are likely more concerned with their Thanksgiving celebrations (many of which will stretch long into the weekend), on the European side of the coin, it’s business as usual. With that in mind, I’ve been talking with traders and the big focus this week is on the reversal we have seen in risk currencies in response to news of the new COVID strain, in some cases this initiated fresh moves and in some cases exacerbated existing moves. In the FX space, the move traders seem to be talking about is the 3.6% drop in NZDJPY this week. So, let’s break down what caused the move and, as ever, if you caught it? Well done! If not? There’s always next week!
What Caused The Move?
So, there are two key elements to the sell off in NZDJPY this week. Firstly NZD came under pressure in response to the RBNZ November meeting, with added pressure as risk assets collapsed under fears over the new COVID strain. Secondly, JPY saw a strong resurgence late in the week, reversing firmly higher on safe haven demand linked to the COVID news.
RBNZ Disappoint Bulls
The RBNZ meeting this week was a highly anticipated event given the hawkish expectations heading into the event. The market had fully priced in a .25% hike, fuelled by recent data strength and hawkish RBNZ commentary, with additional pricing showing a 40% probability of a larger hike. However, bulls were left disappointed as the bank only hiked by the well-expected .25%. Although the accompanying rate-path projections were lifted, the policy adjustments this time around were not enough to drive NZD higher.
New COVID Strain Hits Risk Assets & Drives JPY Higher
News late in the week of the emergence of a new strain of COVID, located first in Botswana, which is more contagious and lethal than all other strain and, so far it seems, resistant to vaccines and antibodies. While it is very early days and more tests are needed on the strain, the initial results are raising fears of a fresh global wave of the pandemic. Many countries are now placing travel restrictions on South Africa in a bid to quell the spread. Risk assets have come under heavy pressure on Friday whereas safe haven assets, such as JPY have been driven higher. With this dynamic likely to gather pace over the weekend, there is room for further downside in the pair.
Technical Views
NZDJPY
The reversal lower in NZDJPY this week has seen the market breaking down below the bearish channel and below the 79.19 level. Price is currently testing support at the 77.34 level. With both MACD and RSI bearish, however, there is room for the move to continue lower towards 75.63.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.