NZD/JPY:FIBO PRICE ACTION ANALYSIS| UPTREND |LONG SETUP READY 🔔Welcome back Traders, Investors, and Community!
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NZD JPY BUY (NEW ZEALAND DOLLAR - JAPANESE YEN)NZD
FUNDAMENTAL BIAS: BULLISH
1. Developments surrounding the global risk outlook.
As a high-beta currency, NZD has benefited from the market's improving risk outlook over recent months as participants moved out of safehavens and into riskier, higher-yielding assets. As a pro-cyclical currency, the NZD enjoyed upside alongside other cyclical assets going into what majority of market participants think was an early post-recession recovery phase. As long as expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the NZD in the med-term.
2. The Monetary Policy outlook for the RBNZ
The RBNZ delivered a very hawkish tils during their July policy meeting, by announcing that they will be completely stopping purchases under their LSAP program from the 23rd of July. Going into the meeting markets were already expecting the bank to cut rates as soon as November, which meant that tapering QE was a necessary prerequisite for the bank to signal that they are indeed planning to hike rates this year. However, after the hawkish tilt, and especially after the solid beat in Q2 CPI on Friday, OIS markets are pricing in about a 70% chance of a hike as soon as the August meeting. Even though the meeting and beat in CPI is of course positive and suggests tighter policy, the bank called July’s decision a ‘least regrets’ policy and added that ‘some monetary stimulus remains necessary’ to reach their goals. This does not sound like a bank that is very excited to hike rates this month or even hike three times before year end as some participants expect. Thus, there is a chance that markets might have been a bit too aggressive in their expectations and could be setting up for a disappointment. However, whether that is the case or not, the tilt from the bank and the beat in CPI is expected to be a supportive factor for the NZD going into the August policy meeting.
3. The country’s economic and health developments
A solid Q2 Jobs report has seen OIS markets pricing in close to a 100% chance of a hike at the RBNZ’s August meeting, with more participants now seeing a high probability of 3 hikes from the bank before year-end and the possibility of a fourth in Q1 of 2022. That would place the RBNZ miles ahead of its peers in terms of their policy stance and the divergence should continue to provide a favourable environment for the NZD, which in our opinion has not been pricing in its fundamental realities as much as the bond market has.
4. CFTC Analysis
It seems the challenges facing China as well as a few jittery risk sentiment days has seen market participants reduce positioning in the NZD (- 1746) with the net-positioning still close to neutral. This doesn’t really reflect the current fundamental outlook for the NZD with a rate hike fully expected for later this month. One can argue that the NZD has been trading more muted with a lot of the positive potentially already reflected in the price, but that would be quite surprising given that the NZD haven’t been trading as strong as it’s fundamentals suggest. That means with a neutral positioning there should be further scope for upside, but risk sentiment will of course be important to watch as always.
JPY
FUNDAMENTAL BIAS: BEARISH
1. Safe-haven status and overall risk outlook
As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY.
2. Low-yielding currency with inverse correlation to US10Y
As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y . However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow dependent on the type of market environment from a risk and cycle point of view. In the past week we saw a perfect environment for downside in the JPY versus the USD when better-than-expected ISM Services data and less dovish comments from Fed’s Clarida gave US10Y a lift alongside the US Dollar , which was enough for the USDJPY to break back above 109.00 and 109.50. Then on Friday the good US jobs report saw yet another environment for US10Y and the Dollar to push higher, creating yet another perfect environment for USDJPY to push higher, and the pair managed to reclaim the 110.00 and break above key technical trend support. Given the positive backdrop from last week, the pair should continue to enjoy upside, with the biggest risk being any major risk off moves which might see downside in yields and upside in the JPY from safe haven flows.
3. CFTC Analysis
The JPY remains the biggest net short among the majors and didn’t manage to take any real advantage of the drop lower in US10Y . Given the wash out in treasury positions and the move towards 1.12% in US10Y over the past few weeks the JPY has not really taken the bait to appreciate as one would have thought. Thus, even though the currency remains oversold from a positioning point of view, it does show that there is some possible asymmetry in long USDJPY right now as a move lower in yields have not negatively affected the pair as one would have expected.
After the most recent Fed rhetoric and the solid US data we’ve have finally seen some promising moves higher in US10Y in line with the med- term outlook, and with a very light data calendar in the week ahead a further move higher in the USD and US10Y could provide a good backdrop for a further grind higher in the USDJPY , with big risk off flows the biggest risk to that view as it should be supportive of the safe haven JPY.
NZDJPY 8 HourPrice has rejected off the top of the bearish channel for a "3rd touch" to finish off last week, which also aligns with a previous resistance zone where price made a sharp reversal in the past. This upcoming week, I will be watching the lower timeframe for a slight retracement & will be anticipating price to resume lower this week towards the highlighted level below.
NZDJPY facing bearish pressure | 06 August 2021NZDJPY is holding under a descending trend line and currently testing the swing high resistance at 77.486 which is in line with the 161.8% Fibonacci retracement and the 78.6% Fibonacci extension . Price is likely to reverse under this level to take support at the horizontal swing low support in line with the 161.8% Fibonacci extension and the 61.8% Fibonacci retracement .
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed on the website.
NZDJPY facing bearish pressure | 05 Aug 2021Appears that NZDJPY is currently approaching the horizontal swing high support in line with 161.8% Fibonacci retracement and 61.8% Fibonacci extension . We can expect price to resist off this level to plunge and take support at the horizontal swing low support at 76.098 which is in line with 61.8% Fibonacci extension and 100% Fibonacci extension . Our bearish bias is further supported by stochastic is shown to be approaching a hidden resistance level at 92.97.
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed on the website.
NZDJPY facing bearish pressure | 05 AUG 2021 NZDJPY approaching the upper resistance of the price channel in line with the horizontal swing high support, 161.8% Fibonacci retracement and the 61.8% Fibonacci extension. Price is likely to reverse off this level to take support at the horizontal swing low support which is in line with the 61.8% Fibonacci extension level. Our bearish bias is further supported by how stochastic is approaching a hidden resistance level at 92.64.
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NZDJPY facing bearish pressure | 04 August 2021NZDJPY is currently approaching the horizontal swing high resistance which is in line with the 61.8% Fibonacci extension and the 161.8% Fibonacci retracement. We can expect price to resist off this area and reverse to take support at the horizontal swing low support at 76.054 which is in line with the 61.8% Fibonacci retracement and the 127.2% Fibonacci extension. Our bearish bias is further supported by how price is holding below the EMA.
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary, and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interest arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed on the website.
NZDJPY looking for a lower low? 🦐NZDJPY after the recent highs is moving into a retracement on a lower high lower low move.
The price, after the perfect test of the monthly support (purple), created an impulse to the 77.350 area and currently is trading around the weekly support at 76.300.
According to Plancton's strategy if the conditions will be satisfied we can set a nice short order.
–––––
Follow the Shrimp 🦐
Keep in mind.
🟣 Purple structure -> Monthly structure.
🔴 Red structure -> Weekly structure.
🔵 Blue structure -> Daily structure.
🟡 Yellow structure -> 4h structure.
⚫️ Black structure -> <4h structure.
Here is the Plancton0618 technical analysis , please comment below if you have any question.
The ENTRY in the market will be taken only if the condition of the Plancton0618 strategy will trigger.
COT CURRENCY REPORTAUD, NZD & CAD:
The fact that the AUD is now the second largest net-short position among the majors does not really surprise given the recent string of negative factors such as the virus situation, slowing economic data in China and falling Iron Ore prices. This week we have the RBA policy decision coming up and markets want to know how stressed the bank has become given the recent challenges.
It seems that consensus is expecting the bank to cancel their planned tapering that would have started in September, with more aggressive bets forecasting the bank to announce a higher pace of QE at this week’s meeting. Either way it will be an important one to watch for the AUD.
For the NZD and CAD continued to move closer to neutral positioning. For the CAD this was hardly a surprise given the stretched positioning to begin with, but the NZD was a surprise with the currency not being able to take meaningful advantage of the most hawkish central bank among the majors.
This week the quarterly employment data from New Zealand will be crucially important as it will be the last big ticket data points before the August RBNZ policy decision and could either seal the deal for a hike or could push back some of those expectations in the event of a very big miss.
JPY, CHF & USD:
The JPY remains the biggest net short among the majors, and surprisingly has failed to take any real advantage of the drop lower in US10Y. Given the wash out in treasury positions and the move towards 1.14% in US10Y the JPY has not really taken the bait to appreciate as one would have thought.
Thus, even though the currency remains oversold from a positioning point of view, it does show that there is some possible asymmetry in long USDJPY right now as a move lower in yields have not negatively affected the pair, and at these lows the probability is skewed towards US10Y upside.
For the Dollar, it’s going to be a very data heavy week with the main event being Friday’s July jobs report. As the Fed’s focus has shifted away from inflation and towards the labour market, the jobs data will be watched closely as a gauge to see whether we are moving towards or away from the Fed’s goal of ‘substantial further progress’. Make sure to also keep track of the data points feeding into Friday’s NFP such as the two ISM PMI reports as well as the ADP National Employment data.
GBP:
The Pound is still in a net-short positioning despite the fundamental outlook still remaining bullish for the currency. That is a positive in our view as it shows that a lot of the frothy positioning has been flushed out after the June FOMC meeting.
This week the main event for the GBP will be the upcoming BoE policy decision coming up on Thursday. With hawkish comments from BoE’s Saunders, some participants have argued that we could see a possible dissention at this week’s meeting on whether to continue with QE or whether to cut back.
For now, it seems premature for the bank to cut purchases with the furlough scheme still needing to be unwound. The bank would arguably want to see how the labour market holds up before they commit to normalization, and that means waiting until at least October, in which case they would only have about 6 weeks of purchases left, which means the higher likelihood right now is that QE runs out as expected.
EUR:
For the EUR net-long positioning has continued to fall with the data updated until 26 July. As expected, the EUR managed to grind out some mild gains against the greenback, but unfortunately given the choppy price action going into FOMC we weren’t able to benefit the rewards and was taken out at break-even on our long EURUSD positions.
This week, with a light calendar for the EUR it’s going to be a very Dollar focused week for the EUR in general. The weak bearish bias remains intact fundamentally, so any continued upside in EURUSD into key resistance areas could set up some interesting shorting opportunities.
However, with such a busy data week ahead, it might be best to wait for data points before engaging the market, especially as we are now officially in the thinner liquidity and lower volume month of August, we might be in store for some choppy price action in between key data points.
NZD JPY BUY (NEW ZEALAND DOLLAR - JAPANESE YEN)NZD
FUNDAMENTAL BIAS: BULLISH
1. Developments surrounding the global risk outlook.
As a high-beta currency, NZD has benefited from the market's improving risk outlook over recent months as participants moved out of safe-havens and into riskier, higher-yielding assets. As a pro-cyclical currency, the NZD enjoyed upside alongside other cyclical assets going into what majority of market participants think was an early post-recession recovery phase. As long as expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the NZD in the med-term.
2. The Monetary Policy outlook for the RBNZ
The RBNZ delivered a very hawkish tils during their July policy meeting, by announcing that they will be completely stopping purchases under their LSAP program from the 23rd of July. Going into the meeting markets were already expecting the bank to cut rates as soon as November, which meant that tapering QE was a necessary prerequisite for the bank to signal that they are indeed planning to hike rates this year. However, after the hawkish tilt, and especially after the solid beat in Q2 CPI on Friday, OIS markets are pricing in about a 70% chance of a hike as soon as the August meeting. Even though the meeting and beat in CPI is of course positive and suggests tighter policy, the bank called July’s decision a ‘least regrets’ policy and added that ‘some monetary stimulus remains necessary’ to reach their goals. This does not sound like a bank that is very excited to hike rates this month or even hike three times before year end as some participants expect. Thus, there is a chance that markets might have been a bit too aggressive in their expectations and could be setting up for a disappointment. However, whether that is the case or not, the tilt from the bank and the beat in CPI is expected to be a supportive factor for the NZD going into the August policy meeting.
3. The country’s economic and health developments
The only major economic data point that is left until the August policy meeting is the incoming quarterly employment report this week. If that shows a solid print it should be the last nod the markets need to fully price in a hike so definitely one to keep on the radar.
JPY
FUNDAMENTAL BIAS: BEARISH
1. Safe-haven status and overall risk outlook
As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY.
2. Low-yielding currency with inverse correlation to US10Y
As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y . However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow dependent on the type of market environment from a risk and cycle point of view. Even though the correlation was exceptionally strong from the start of the year, we have started to see some breakdown in the correlation over the past few weeks. The pair has broadly started to follow yields more recently, which has given us reason to take a pause in the pair as the bond market has not really been trading the way that we (and it seems vast majority of market participants) have expected. Given the current growth, inflation and tapering expectations the market expected yields to trade higher, but that hasn’t been the case of course. As long as yields remain stuck at key support the odds of building a base and moving higher again means the upside bias remains intact for USDJPY , but if yields should take out recent support, we would expect USDJPY to follow it lower.
NZDJPY facing bearish pressure | 02 August 2021 Price is currently approaching and likely to break the horizontal overlap support at 76.225 which is in line with 50% Fibonacci retracement and 50% Fibonacci extension. Should price break the 1st support, we can expect price to plunge further to take support at the 75.273 level in line with our horizontal swing low and 100% Fibonacci extension level. Our bearish bias is further reinforced by how the MACD is holding below the 0 line.
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NZDJPY likely to face bearish pressure|29 July 2021NZDJPY is approaching sell entry at 76.516 which is in line with horizontal pullback support, 38.2% Fibonacci retracement and 61.8% Fibonacci extension . Should price break this level, we can expect price to plunge further and take support at the horizontal swing low support at 75.7680 in line with 78.6% FIbonacci retracement and 100% Fibonacci extension . Our bearish bias is further supported by how MACD is holding below the 0 line.
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed on the website.
NZDJPY facing bearish pressure | 28 July 2021Appears that price is approaching and likely to resist off the horizontal overlap resistance in line with the 38.2% Fibonacci retracement . Price is expected to take support at the 75.532 level in line with the horizontal swing low and 78.6% Fibonacci extension level. Our bearish bias is further supported by how price is holding below the EMA .
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed on the website.
NZDJPY facing bearish pressure | 28 July 2021NZDJPY is approaching the sell entry at the 76.516 level in line with the horizontal overlap resistance, 38.2% Fibonacci retracement, and the 100% Fibonacci extension level. We can expect the price to take support at the 75.768 level in line with the 78.6% Fibonacci extension and 78.6% Fibonacci retracement level. Our bearish bias is further supported by how price is holding below the EMA.
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary, and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interest arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed on the website.
NZDJPY likely to face bearish pressure|28 July 2021 Appears that price is approaching and likely to resist off the horizontal overlap resistance in line with the 50% Fibonacci retracement and the 61.8% Fibonacci extension to take support at the 76.2 level. This level is in line with the horizontal pullback resistance, 50% Fibonacci extension and 50% Fibonacci retracement. Our bearish bias is also further supported by how price is holding below the EMA.
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Losses can exceed the initial investment so please ensure you fully understand the risks.
NZDJPY facing bearish pressure | 27th July 2021Price is currently testing the weak H1 horizontal overlap support which is in line with the 38.2% Fibonacci retracement and 38.2% Fibonacci extension. Should price break this level, we can expect price to drop and take support at 76.516 which is in line with the 100% Fibonacci extension. 38.2% Fibonacci retracement as well as the horizontal swing low support. Our bearish bias is further supported by how MACD is holding below the 0 line.
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary, and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interest arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed on the website.
NZDJPY facing bearish pressure | 26th July 2021Price is holding below the descending trendline and approaching a horizontal swing low support which coincides with the 38.2% Fibonacci retracement level. Should price successfully break this level, we can expect a bearish plunge to our take profit at 75.532 which is in line with the 78.6% Fibonacci extension level and the horizontal swing low. Our bearish view is further supported by how the price is holding below the EMA.
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary, and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interest arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed on the website.
26 July: NZDJPY time to go short Hi everyone, NZDJPY is holding below its daily resistance which lines up with the 78.6% retracement. On the H1 time frame, a test of its previous support-turned-resistance level at 77.048 which lines up with the 61.8% retracement, presents a good opportunity to play the drop. What are your views on NZDJPY?
NZDJPY - Key Area Approaching!NZDJPY approaching a key reversal area. We're in a series of impulse and corrections. Expecting the next impulse very soon.
We're expecting JPY strength = NZDJPY SHORT.
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COT CURRENCY REPORTAUD, NZD & CAD:
Yet another 13K unwind of net long positions for the CAD in the CFTC data updated until the 20th of July means that a lot of the froth in positioning has been taken care of. Our concerns about positioning for the past few weeks meant a patient stance with CAD longs, but with the size of the unwind we think CAD longs look attractive again on a relative basis.
As for the NZD, the currency still looks very ‘cheap’ at the current levels given that the RBNZ is the first major central bank that stopped QE. Apart from that, expectations for rates to go higher in the next three weeks should also provide a favourable environment for the NZD. We like NZD longs versus the Dollar going into this week’s FOMC.
We remain patient on AUD with the virus escalation. The challenge for Australia when compared to places like the UK and US is that the vaccination roll out is miles behind. So, if the same type of spike in cases occur it could create a lot of economic pain as we head deeper into Q3. On the radar this week will be employment data, and if that comes in much softer than expected our preferred way to express AUD weakness would be with AUDNZD and AUDCAD downside.
JPY, CHF & USD:
The JPY positioning remains stretched to the downside, and the fast and punchy recovery in equity markets didn’t do the JPY any favours either. However, the inverse correlation with US10Y could still see JPY pressured.
We’ve seen a lot of downside in US10Y over the past few weeks, beyond what majority of market participants (us included) were anticipating. The downside in yields meant one less negative driver for the JPY. But as a ton of the stretched positioning in treasury shorts have arguably been flushed out, we could see yields regain some upside momentum again.
For the USD, this week we are turning slightly more cautious on the Dollar. Yes, the USD had good reason to see the upside it enjoyed over the past few weeks. But as the markets are looking for a slightly more cautious sounding Fed this week (due to the Delta variant), and since short-term the price action is looking a bit stretched, there could be some downside for the USD going into the FOMC.
GBP:
The GBP put in a decent recovery from the lows this week. Monday saw some downside as participants were disappointing when the most dovish member of the BoE said some dovish things. Hardly the type of reaction one would expect, but after the comments from Saunders the week before there was some hope that the overly dovish Haskel might do the same.
However, despite the Monday sell off we saw Sterling put in a solid recovery, despite ongoing tensions between the UK and EU regarding the Northern Ireland Protocol. At the current levels, especially with positioning back into net short, one has to argue that GBP is looking attractive from a value perspective.
As the markets are expecting a cautious sounding Fed this week, one of the ways we would like to express potential USD weakness in the week ahead is against the GBP. Obviously, we’ll need to keep close track of any major negative escalations on the political front.
EUR:
The EUR has seen a sizable push lower ever since we had the less dovish than expected June FOMC meeting. After that, the Dollar has enjoyed further upside from various drivers which has kept the EUR pressured, and the ECB’s continued dovish tone sure hasn’t helped.
We have been very patient in chasing the EURUSD lower after finding the support around 1.1780 – 1.1850 as a very tough nut to crack. Even though we maintain a fundamental bearish outlook on the EUR and the EURUSD one has to argue that the downside looks a tad stretched.
Positioning seems to agree with this as we’ve seen a whopping 72000 reduction in net long positioning in the past 5 weeks (that’s a lot). Yes, the overall net long positioning still looks way too high for the fundamental outlook, but timing doesn’t favour chasing the EUR lower from here.
At the current levels the risk-to-reward does look attractive for a possible short-term mean reversion opportunity to the upside for EURUSD going into the FOMC, that is barring any possible risk off environments which should be supportive for the USD.
*This report reflects the COT data updated until 20 July 2021.
NZDJPY facing bearish pressure | 23 July 2021Price is holding under the descending trendline and is likely to reverse under the swing high resistance which is in line with the 78.6% Fibonacci retracement level and the 127.2% Fibonacci extension level. Price is likely to take support at the 76.547 horizontal swing low support which is in line with the 23.6% Fibonacci retracement level. Our bearish view is further driven by how the RSI price is likely to resist off the hidden support level.
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