- The New Zealand dollar did pull back a bit against the Japanese yen in the early hours on Wednesday as we continued to see a bit of Japanese strength in Asian and European trading.
- However, by the time New York woke up, the New Zealand dollar had turned around to show signs of life and form a bit of a hammer.
Ultimately, I think this is a market that's trying to find its floor and the 88 yen level might be the beginning of a major floor in the market. We had sold off quite viciously before this happened. So we need to keep an eye on whether or not the market gets oversold. And you can see on the relative strength index that it is touching the oversold area.
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In the Middle of Bigger Consolidation?
It doesn't take much in the way of imagination to suggest that perhaps we are in the midst of a larger consolidation area with the 88 level, maybe even the 87 level being the floor, while the 92 level is the ceiling.
If that's the case, then it does make a certain amount of sense that we could see this market recover, at least in the short term. Keep in mind the interest rate differential favors New Zealand and the Japanese yen, of course, is feckless when it comes to being able to protect itself via the interest rate markets, despite the fact that the 10-year yield in Japan is now a whopping 1%. The Bank of Japan cannot tighten monetary policy too much, and I do think that will continue to be a major reason why this market will eventually go higher.
This, of course, does not take into effect or account if something really bad happens from a risk appetite perspective. As long as things remain somewhat stable, I would anticipate a bit of a bounce.
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