NZDJPY Potential Reversal (July 21, 2015)

Price found support at the 81.00 major psychological mark and resistance at the 83.00 major psychological level, which is the neckline of the chart formation.

A break above the 83.00 mark would confirm that an uptrend is underway and that a rally could take NZDJPY up to the 85.00 major psychological resistance. For now, stochastic is indicating overbought conditions and so is RSI, suggesting that a selloff might be more likely.

In addition, the 100 SMA has just crossed below the 200 SMA once more, suggesting that the downtrend is set to carry on. If so, the pair could test the former lows once more or even go all the way down to the next support at 80.00.

The main event risk for this setup is the RBNZ interest rate decision in Thursday’s early Asian trading session. The pair could sell off once more if the central bank decides to lower interest rates again, just as they did in their previous rate statement.

Dairy prices have been on the decline in New Zealand, leading to lower milk payout forecasts for farmers. This could mean lower investment and spending activity down the line, which might weigh on overall economic growth.

Risk appetite could also play a major role in this pair’s price action, as there have been no major reports out of Japan. Falling commodity prices have been the main market theme in the past few days, leading to a downturn in risk-taking and a rally for the lower-yielding Japanese yen.

Earlier today, Japan released the minutes of its latest monetary policy meeting, which didn’t really contain any surprises. Policymakers noted that exports have been picking up and that business activity is seeing improvements.

By Kate Curtis from Trader's Way