NZDJPY continues to trend lower as its moves below a descending trend line visible on the 1-hour and 4-hour time frame.

Price could be due for another pullback to the trend line, which lines up with the 61.8% Fibonacci retracement level. 

The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. The 100 SMA also lines up with the trend line resistance, adding to its strength as a ceiling. If it holds, another drop to support at the 79.00 handle could take place. 

Stochastic is already indicating overbought conditions and might be heading lower so the pair could follow suit. Also, a bearish divergence can be seen since stochastic made higher highs while price had lower highs. 

Over the weekend, New Zealand reported a 2.0% rise in its headline retail sales and a 2.1% increase in core retail sales. This is stronger compared to the previous period’s 1.5% gains. Prior to this, however, the RBNZ sounded less upbeat about inflation prospects and even expressed their desire to see a lower Kiwi. 

In Japan, the preliminary GDP reading chalked up a stronger 1.0% growth figure compared to the earlier 0.3% expansion. The yen is also gaining support from risk-off flows coming from the tensions with North Korea.

New Zealand has its GDT auction coming up later in the week, along with its quarterly PPI report. Stronger than expected gains in producer prices and dairy prices could revive better inflation expectations and prevent the RBNZ from jawboning further. 

By Kate Curtis from Trader’s Way