NZD/JPY, New Zealand Dollar, Japanese Yen, Hong Kong National Security Bill – TALKING POINTS
- S&P 500, Nasdaq closed higher – Dow Jones fell on sharp decline in oil stock prices
- Growing tension over Hong Kong national security legislation may spoil risk appetite
- NZD/JPY on the cusp of testing narrow but formidable resistance range – what next?
The S&P 500 and Nasdaq indices had a modestly good day, ending 0.50 and 0.95 percent higher, respectively, though the Dow Jones was starved for love. The industrial-leading index closed 0.30 percent lower for the day with the biggest losses in the energy sector, specifically in oil. Interestingly enough, crude oil itself was up for the day along with the petroleum-linked Norwegian Krone.
This suggests the index’s decline had more to do with the sharp drop in Exxon Mobil Corp’s and Chevron’s stock prices than with broader issues in oil markets. Most soft and hard commodities were up for the day while the anti-risk US Dollar and Japanese Yen fell after better-than-expected ISM data was released. FOMC minutes were also published, though their impact on market sentiment was somewhat muted.
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Officials expressed concern and hesitancy in characterizing recent economic data as indicative of a recovery, a message Fed Chairman Jerome Powell stressed in June. Monetary authorities said they expect a strong gain in consumption in 2H, though added that consumer recovery will be as rapid beyond 2020. No decision was given on yield curve control (YCC), though officials agreed more analysis is needed before implementation.
Thursday Asia-Pacific Trading Session
A relatively light data docket may mean traders will place their focus on macro-fundamental themes like the coronavirus and regional geopolitical risk. Beijing recently passed a sweeping national security bill for Hong Kong that was implemented less than 24 hours ago and has led to over 300 arrests already. Political tension could sour sentiment and push the anti-risk Japanese Yen higher at the expense of the New Zealand Dollar.
The move has drawn harsh criticism from abroad, with Secretary of State Mike Pompeo saying in a statement that “The United States will not stand idly by while China swallows Hong Kong into its authoritarian maw”. Beijing and Washington have made pointed threats to each other with growing concern it could spill over into other areas of policy like trade. Until recently, it was arguably the biggest market mover prior to Covid-19.
NZD/JPY may be on the verge of clearing a narrow but formidable inflection range between 69.897 and 70.000. The pair recently stalled between those parameters in the lead up and retreat from resistance at 71.249. If NZD/JPY is able to surmount that multi-layered ceiling with follow-through and break above 71.249, it could inspire bullish sentiment and push the pair higher.
NZD/JPY – Daily Chart
NZD/JPY chart created using TradingView
— Written by Dimitri Zabelin, Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitriTwitter