Forex Market: NZD/JPY trading forecast for October 12th

Friday’s trade saw NZD/JPY within the range of 79.74-80.89. The pair closed at 80.49, soaring 0.65% on a daily basis, while marking a ninth consecutive trading day of gains. The daily high has been the highest level since August 24th, when the cross registered a high of 81.62. In weekly terms, NZD/JPY surged 4.15%, while marking a fifth straight week of gains. It has been the sharpest weekly advance since the week ended on September 8th 2013, when the cross appreciated 4.54%.

On Monday (October 12th) NZD/JPY trading may be influenced by the releases listed below.

Fundamentals

Japan

Bank of Japan Minutes

At 23:50 GMT on Monday Bank of Japan will release the minutes from its meeting on policy, held on October 7th. The minutes offer detailed insights on central bank’s monetary policy stance. This release is closely examined by traders, as it may provide clues over interest rate decisions in the future. Moderate-to-high volatility is usually present after the publication. In case the minutes show a hawkish outlook, this usually supports the yen, while a dovish outlook usually has a bearish effect on the national currency.

At its October policy meeting, Bank of Japan kept the pledge to expand Japans monetary base at an annual pace of about JPY 80 trillion yen. The Banks Policy Board decided by an 8-1 vote to buy exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) in order to boost their amounts outstanding by the annual JPY 3 trillion yen and JPY 90 billion yen respectively.

The central bank stated that Japanese economy continued following the path of moderate recovery, regardless of the impact slowdown in emerging economies has had on the nations exports and production.

According to the Banks Monetary Policy Statement: ”Exports and industrial production have recently been more or less flat, due mainly to the effects of the slowdown in emerging economies. On the domestic demand side, business fixed investment has been on a moderate increasing trend as corporate profits have continued to improve markedly. Against the background of steady improvement in the employment and income situation, private consumption has been resilient and housing investment has been picking up. Public investment has entered a moderate declining trend, although it remains at a high level. Meanwhile, business sentiment has generally stayed at a favorable level, although somewhat cautious developments have been observed in some areas.”

”With regard to the outlook, Japans economy is expected to continue recovering moderately. The year-on-year rate of increase in the CPI is likely to be about 0 percent for the time being, due to the effects of the decline in energy prices. Risks to the outlook include developments in the emerging and commodity-exporting economies, the prospects regarding the debt problem and the momentum of economic activity and prices in Europe, and the pace of recovery in the U.S. economy.”

”Quantitative and qualitative monetary easing (QQE) has been exerting its intended effects, and the Bank will continue with the QQE, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner.”

Correlation with Major Pairs

Taking into account the week ended on October 11th and the daily closing levels of the currency pairs involved, we come to the following conclusions in regard to the strength of relationship:

NZD/JPY to NZD/USD (0.9931, or very strong)
NZD/JPY to AUD/USD (0.9878, or very strong)
NZD/JPY to EUR/USD (0.8585, or very strong)
NZD/JPY to GBP/USD (0.8495, or very strong)
NZD/JPY to USD/JPY (-0.5177, or strong)
NZD/JPY to USD/CHF (-0.7833, or strong)
NZD/JPY to USD/CAD (-0.8779, or very strong)

1. During the examined period NZD/JPY moved almost equally in one and the same direction with NZD/USD, AUD/USD, EUR/USD and GBP/USD. The correlation between NZD/JPY and NZD/USD was almost perfect.

2. NZD/JPY moved strongly in the opposite direction compared to USD/JPY and USD/CHF during the week.

3. NZD/JPY moved almost equally in the opposite direction compared to USD/CAD during the period in question.

Bond Yield Spread

The yield on New Zealands 2-year government bonds went as high as 2.615% on October 9th, or the highest level since August 20th (2.640%), after which it slid to 2.595% at the close to gain 3 basis points (0.03 percentage point) on a daily basis. It has been a fourth consecutive trading day of increase.

The yield on Japans 2-year government bonds climbed as high as 0.014% on October 9th, or matching the high from the previous day, after which it fell to 0.010% at the close to gain 0.003 percentage point on a daily basis, while marking a second consecutive trading day of increase.

The spread between 2-year New Zealand and 2-year Japanese bond yields, which reflects the flow of funds in a short term, widened to 2.585% on October 9th from 2.558% during the prior day. The October 9th yield spread has been the most notable one since August 19th, when the difference was 2.623%.

Meanwhile, the yield on New Zealands 10-year government bonds soared as high as 3.485% on October 9th, or matching the high from the prior day, after which it slid to 3.460% at the close to appreciate 3 basis points (0.03 percentage point) compared to October 8th, while marking a fourth straight trading day of gains.

The yield on Japans 10-year government bonds climbed as high as 0.339% on October 9th, or matching the high from the previous two days, after which it slipped to 0.332% at the close to lose 0.007 percentage point compared to October 8th. It has been the first drop in the past three trading days.

The spread between 10-year New Zealand and 10-year Japanese bond yields widened to 3.128% on October 9th from 3.091% during the prior day. The October 9th yield difference has been the largest one since July 15th, when the spread was 3.161%.

Daily and Weekly Pivot Levels

By employing the traditional calculation method, the Monday pivot levels for NZD/JPY are presented as follows:

Central Pivot Point – 80.37
R1 – 81.01
R2 – 81.52
R3 – 82.16

S1 – 79.86
S2 – 79.22
S3 – 78.71

By using the traditional method of calculation again, the weekly pivot levels for NZD/JPY are presented as follows:

Central Pivot Point – 79.49
R1 – 81.89
R2 – 83.30
R3 – 85.70

S1 – 78.08
S2 – 75.68
S3 – 74.27