Forex Market: NZD/JPY trading forecast for September 14th

Friday’s trade saw NZD/JPY within the range of 75.62-76.50. The pair closed at 76.17, gaining 0.38% on a daily basis, or the most modest daily gain since August 26th, when it appreciated 0.34%. On Wednesday the pair went up as high as 77.96, or the highest level since August 31st, when a daily high of 78.86 was reached. On a weekly basis, NZD/JPY added 1.86%, which has been the first gain in the past three weeks.

Even as the Reserve Bank of New Zealand cut borrowing costs during the week, NZD/JPY will still provide decent carry trade results. 2 standard lots held for 20 trading days, for instance, would yield an interest of USD 241.04.

On Monday (September 14th) the cross may be influenced by a number of macroeconomic reports as listed below.

Fundamentals

Japan

Industrial Production – final estimate

The final estimate of Japanese industrial production probably confirmed the preliminary data, which was reported on August 30th, pointing to a 0.6% contraction in July compared to a month ago. In June the index rose at a final monthly rate of 1.1%, as reported on August 12th, up from a preliminary rate of 0.8%. Junes rate of increase has been the sharpest one since April this year.

Annualized industrial output probably increased at a final rate of 0.2% in July, according to market expectations. If so, it would match the preliminary estimate, reported on August 30th. In June Japanese production climbed at a final annual rate of 2.3%, up from a preliminary estimate of 2.0% growth. It has been the fastest annual increase since June 2014, when industrial output was reported to have expanded at a final 3.1%.

This index reflects the business cycle and measures the change in the total inflation-adjusted value of production in sectors such as manufacturing, mining and utilities. Industrial production index performance is a key indicator, providing clues over how strong inflationary pressure in the country might be. It also belongs to the group of coincident indicators and, as such, any change it shows usually echoes similar shifts in macroeconomic activity as a whole. Therefore, in case industrial production rose at a faster pace than expected, this would usually have a moderate bullish effect on the Japanese yen. The Ministry of Economy, Trade and Industry is to publish the final data at 4:30 GMT on Monday.

Correlation with Major Pairs

Taking into account the week ended on September 13th 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 (0.9232, or very strong)
NZD/JPY to USD/JPY (0.7614, or strong)
NZD/JPY to AUD/USD (0.5865, or strong)
NZD/JPY to GBP/USD (0.5592, or strong)
NZD/JPY to EUR/USD (0.2967, or weak)
NZD/JPY to USD/CHF (-0.1117, or weak)
NZD/JPY to USD/CAD (-0.5483, or strong)

1. During the examined period NZD/JPY moved almost equally in one and the same direction with NZD/USD.

2. NZD/JPY moved strongly in one and the same direction with USD/JPY, AUD/USD and GBP/USD, while moving strongly in the opposite direction compared to USD/CAD during the week in question.

3. The correlation between NZD/JPY and EUR/USD, NZD/JPY and USD/CHF was insignificant.

Bond Yield Spread

The yield on New Zealands 2-year government bonds went as high as 2.520% on September 11th, after which it slid to 2.475% at the close to lose 3.5 basis points (0.035 percentage point) on a daily basis, while marking a second consecutive trading day of decline.

The yield on Japans 2-year government bonds climbed as high as 0.019% on September 11th, or matching the high from the prior two trading days, after which it closed at the exact same level to gain 0.004 percentage point for the day.

The spread between 2-year New Zealand and 2-year Japanese bond yields, which reflects the flow of funds in a short term, shrank to 2.456% on September 11th from 2.495% during the prior day. The September 11th yield spread has been the lowest one in more than three months.

Meanwhile, the yield on New Zealands 10-year government bonds soared as high as 3.335% on September 11th, after which it slid to 3.295% at the close to lose 1.5 basis points (0.015 percentage point) compared to September 10th, while marking a second straight day of decrease.

The yield on Japans 10-year government bonds climbed as high as 0.367% on September 11th, or matching the high from a day ago, after which it slipped to 0.354% at the close to lose 1.3 basis points (0.013 percentage point) on a daily basis.

The spread between 10-year New Zealand and 10-year Japanese bond yields narrowed to 2.941% on September 11th from 2.943% during the prior day. The September 11th yield difference has been the lowest one since September 4th, when the spread was 2.936%.

Daily and Weekly Pivot Levels

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

R1 – 76.25
R2 – 76.33
R3 (range resistance) – 76.41
R4 (range breakout) – 76.65

S1 – 76.09
S2 – 76.01
S3 (range support) – 75.93
S4 (range breakout) – 75.69

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

Central Pivot Point – 76.15
R1 – 77.91
R2 – 79.64
R3 – 81.40

S1 – 74.42
S2 – 72.66
S3 – 70.93