Short term
Trade view / 31 August 2016 at 3:41 GMT

NZDJPY: Significant upside potential ahead

Managing Director / Technical Research Limited
New Zealand

Today I am looking at trades that take the USD out of the equation, given the uncertainty surrounding Friday’s employment report. But with little economic data on the calendar the non-dollar crosses are also in wait-and-see mode. 

The Reserve Bank of New Zealand is almost sure (75%-80% chance) to cut its policy rate to 1.75% this year but money market pricing suggests only a 20% chance they will do so at their next meeting on September 8. Meanwhile, the carry trade holds sway. 

In contrast, expectations are growing of something significant from the Bank of Japan on September 21, even some sort of helicopter money, although even if they did it would be a watered-down version (buying bonds directly from the government for permanent hold rather than writing out cheques to the population).
Speculation around this issue is likely to determine the direction of NZDJPY in the meantime.

Management and risk description

Over the past couple of months NZDJPY has been forming a classical charting Inverse Head and Shoulders reversal formation (refer daily chart below) and having just cleared Neckline resistance (see daily chart) now has an upside objective of 81.60.

Interestingly, this may be the prelude to an even more significant upside move. NZDJPY had earlier formed a multi-year Head and Shoulders reversal pattern (refer weekly chart below) but never satisfactorily broke key Neckline support and NZDJPY is now trying to decisively rally above this Neckline, whereupon from a classical charting standpoint, it will then signify a “failed Head & Shoulders” pattern; yielding an upside target of 94.00 over the coming months.


Entry: NZDJPY is seen as a Buy today around 74.40.

Stop: 73.74, initially.

Target: 50% at 77.08 and 50% at 81.16. 

Time horizon: Allow several weeks at least for both targets to be met.  

NZDJPY daily chart (click to expand)
NZDJPY  Daily chart
Source: ThomsonReuters  

NZDJPY Weekly chart (click to expand)
NZDJPY weekly chart
 Source: ThomsonReuters. Create your own charts with SaxoTrader; click here to learn more

— Edited by Susan McDonald

Non-independent investment research disclaimer applies. Read more
31 August
Patto Patto
Good idea Max - although the H&S you see on the daily chart is a bit of a stretch.............
31 August
izwansamba izwansamba
tq max
02 September
ChristianK ChristianK
Hi Max. This is moving well in the right direction so far. Does it make sense to move the stop for some profit protection at this stage? Thx
02 September
Max McKegg Max McKegg
Certainly it does Christian as not prepared to let profits come "too far back on me"
09 September
ChristianK ChristianK
Hi Max. Are you still long NZDJPY after the ECB and slight pullback?
10 September
Max McKegg Max McKegg
Stops tighten to lock-in Profit


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