In 2023, the RBNZ raised interest rates several times in an effort to combat inflation. This led to an increase in the value of the NZD, as investors sought higher returns in New Zealand. Strong economic growth in New Zealand can lead to an increase in demand for the NZD, as businesses and investors look to invest in the country. New Zealand is a major exporter of commodities, such as dairy products, meat, and wood. When commodity prices rise, it can lead to an increase in the value of the NZD, as exporters receive more foreign currency for their products.
The Japanese central bank, Bank of Japan (BOJ), sets the official interest rate. When interest rates in Japan are lower than interest rates in other countries, investors are more likely to invest in other countries, which can lead to a decrease in the value of the JPY. Weak economic growth in Japan can lead to a decrease in demand for the JPY, as businesses and investors look to invest in other countries. Japan is a major importer of commodities, such as oil and natural gas. When commodity prices rise, it can lead to an increase in the value of the JPY, as importers need to pay more foreign currency for their products.
Just a comment about channels. When it is breaking out in the directional of the channel then conventional technical analysis says that it has broken out and that it should go higher. In my experience however, it is more often a false breakout and will eventually reverse. I've got about 40 saved images of channels that I study and many do this. It's only when it breaks out against the channel that it is likely to continue. You have to think about the idea that the channel is already bullish. Why would market participants negate the channel and try to advance beyond it. Not sure if I am clear, but i hope that helps.
kosai19
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@kosai19, To further the point....it's as though you are stretching a rubber band. The rubber band doesn't break when it's stretched a little as people think. When it's beyond the channel highs the tension increases, it didn't snap. There is usually a buffer beyond the level that is the "real" breaking point. That's why I typically color my channels with buffer zones below and above.
DNP-FX
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@kosai19, Thanks for your comment about channels. I agree that it's important to be mindful of false breakouts, and your point about the rubber band is a good analogy. In this case, I'm still bullish on NZDJPY, even though it's broken out of the channel to the upside. Here's why: - The overall trend is still bullish, and the breakout was accompanied by strong volume. - The RBNZ is expected to continue raising interest rates, while the BOJ is expected to remain dovish. - New Zealand's economy is growing strongly, while Japan's economy is relatively weak. - Commodity prices are rising, which is beneficial for New Zealand exporters. Of course, there's always the possibility of a false breakout, so I'll be watching the market closely. I'll also keep your buffer zones in mind, thanks for sharing that tip. P.S. I'm always interested in learning new things about technical analysis, so please feel free to share any other insights you have. =)