The NZDJPY rallied by +1.31% towards the close of the week as the Japanese Yen weakened following BoJ’s Dovish monetary policy stance. The BoJ kept rates unchanged at -0.10% against market expectations of a policy tweak as JGB yields stretched beyond the 0.5% limit. A failure to intervene weakened the Japanese Yen and a break above 84.50 could give bulls an immediate lift higher.
The JGB 10-year yields rose by +6.02% early Friday morning as investors shift focus to the BoJ Monetary Policy Meeting Minutes due for release on Monday. Upside gains are capped by 0.55% and a breach above that level, the Japanese Yen could strengthen on Policy normalization expectations. Fundamentally, the Japanese economy has been showing signs of resilience as indicated by the Trade balance data released earlier this week. The Trade balance rose to -1,448.5B against -1,652.8B anticipated.
However, demand concerns could be a major headwind for NZDJPY in the near term. The Business NZ PMI data for December extended a drop to 47.2 against 47.4 in November while NZIER Business Confidence plunged to -70% against -42% previously.
Traders should pay close attention to the BoJ Meeting Minutes for January for clearer direction after Dovish BoJ’s Kuroda. New Zealand will also release its inflation report early Tuesday morning.
Weekly Chart Analysis
The NZDJPY recovered modestly as bulls bounced off a 7-months low at the 81.00 level. The pair is currently trading in an ascending channel and a break above the 84.50 level coinciding with a Bollinger Band Baseline could give bulls the 88.00 level.
However, there is an interesting divergence between the NZDJPY and MACD indicators. The MACD indicator’s moving averages show falling highs while the volume bars are trading below the 0.000 benchmark suggesting the momentum to the upside could be limited in the near term. The NZDJPY chart shows a rising channel and a break to the downside could trigger selling pressure towards 75.00, a level coinciding with a 200-day moving average.
The ActivTrader Sentiment tool suggests that 90% of retail traders have a bearish bias on the NZDJPY pair. Traders are still pricing in a BoJ policy normalization as Japan’s National inflation report shows an increase from 3.8% to 4.0%. BoJ Monetary Policy Meeting Minutes will be released early Monday morning and any clues of normalization could confirm the market expectation and NZDJPY could drop significantly.
However, the New Zealand dollar remains resilient as China reopening gave investors optimism in the near term. The positive Chinese GDP and Retail Sales data released earlier this week was a major tailwind for NZDJPY bulls in the near term.
Daily Chart Analysis
The NZDJPY bulls rallied from the 82.00 immediate support as they attempt to challenge the 84.00 near-term resistance. Upside gains are capped by the 50-day moving average, a dynamic support and resistance indicator and a break above that level could reinforce further rally towards the 88.00 level. The pair has been range-bound for 7 months and a possible breakaway is imminent in the near term.
However, a failure to break above the 84.00 resistance level could cause selling pressure towards the 81.00 support level. The RSI indicator reading is below the 50.00 level suggesting a bearish weakness for the pair in the near term. A break below the 7 months low could trigger sellers to look for long-term selling opportunities.