Societe Generale recommended an NDJPY short this week. Their thinking for their trade was that August is usually good for the yen, Swiss franc, gold and volatility generally. According to Societe Generale, an NZDJPY short has been the best G10FX trade in August over the last twenty years.

So, are there any fundamental reasons for more NZDJPY downside ahead?

The case for NZD weakness

New Zealand’s business confidence index rose in July, but it could be reaching peak levels now. Also, RBNZ inflation expectations fell to 1.39% from 1.44% in June and the Q3 inflation expectations are due next week. If they disappoint and print near to the Q2 reading of 1.245 then the pressure is on the RBNZ to increase its bond-buying at the August meeting. This will pressure the NZD to the downside.

The case for JPY strength

Aside from the seasonal strength for yen, the broad dollar weakness has also been helping the yen recently. According to Bloomberg data from the Commodity Futures Trading Commission (CFTC), the US dollar is now heading to register its weakest July since 2010. The CFTC shows that asset managers have been adding to net long positions on the yen, the Canadian dollar, and the euro. This should help the yen gain value in August if it continues.

Finally, any fears of a second wave outbreak of COVID-19 across Europe is only going to add to the second wave woes of the rise in US cases.

Rising global cases would support the case for yen strength. The total number of global cases is now over 17 million and five of the last seven days have seen one-day jumps of greater than 250,000 infections.

Technicals and trade parameters

Societe Generale trade parameters were as follows. They had an entry at 69.84, a target at 64, and stops running above the double top at 72.00.


Monthly trend line rejection


Weekly rejection of 72.00 and trendline


Daily chart with double top reversal pattern forming


What would invalidate this outlook?

  • A rapidly improving NZD domestic picture and above the anticipated rise in inflation.
  • A dramatic fall in global COVID-19 cases/ effective treatment for COVID-19.
  • A strong risk-on sentiment will also invalidate this outlook.