Buy NZDJPY | Current Sentiment

Our trade call earlier in the week was to buy NZDJPY around 74.15, with a stop-loss at 72.40 and a target of 75.70. The rationale is that the RBNZ and Governor Wheeler have expressed serious concerns about the overheating housing market and state that it is a major risk to financial stability.

Such commentary suggests the RBNZ will not cut rates again on June 9. This rate decision was previously tipped with an 85% probability of a cut, therefore there is sufficient room to the upside on NZD to absorb a repricing. The yen has seen weakness of late and is retracing some of its recent massive strength, along with rallies in major stock indices. The pair is currently at the 74 handle, having dropped during the Asian session on weak NZ Retail Sales and some mild strength in yen.

Our trade call still in play from Monday was to buy EURGBP on a break of Friday’s high at 0.7920, stop loss at 0.7845 and a target at 0.7990. The pair made a low at 0.7846 when sterling rallied after Carney’s speech, missing our stop-loss by 1 pip. The pair is now 30 pips higher.

Current Sentiment:

During the early Asia-Pacific session, Retail Sales from New Zealand for Q1 slightly missed estimates at 0.8% q/q versus 1.0% expected. Core Retail Sales was at 1.0% versus 1.1% expected. The Kiwi was initially little moved, but has since drifted 30 pips lower. Chances of a cut in June are now very low, therefore this release has less impact. Market pricing has dropped from 85% to 66% since the RBNZ’s FSR, and this number should continue to decline.

Ahead we have a busy London session with multiple medium-impact events; GDP and CPI from Germany, Employment figures from France, GDP from Italy, Construction Output from the UK and most importantly Flash GDP for the Eurozone.

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