Trade Recommendation: NZD/JPY

Technical Overview

  • From 2009 to the end of 2012, NZDJPY found resistance in the 68.50 – 70 range (red portion of horizontal trendlines in Figure 1). In December 2012, NZDJPY moved above the 70 level and continued rallying to reach 85 by April 2013.
  • In July 2015, NZDJPY broke the neckline of a large H&S pattern (tops – white ellipses, neckline – yellow trendline). After meeting the downward target obtained from completing the pattern (white vertical line), NZDJPY continued sliding until finally bouncing off the resistance-turned-support level at 70 (green arrow).

Figure 1. NZDJPY Weekly Chart

  • Zooming in, NZDJPY recently moved below a well-defined support range (75.50 to 76.10 – blue horizontal trendlines in Figure 2).
  • The minor top prior to the most recent decline sits at 76.27 (violet arrow).

 Figure 2. NZDJPY Daily Chart

Implications

  • There are no major supports lying in the 70 – 75 range. If NZDJPY remains below 75.50 (the lower bright blue horizontal trendline in Figure 2), it is expected to continue sliding, potentially reaching 70.
  • A move back above the support range (75.50 to 76.10), and subsequently above 76.27 (the minor high – violet arrow in Figure 2) will negate the bearish implications in the short-term.

Outlook  

  • Bearish below 75.50
  • Neutral with a bearish bias in the 75.50 – 76.27 range.
  • A move above 76.30 may shift outlook to bullish.

Trade Recommendation

  • Short NZDJPY at current level (74.91 at 17:55 on May 29).
  • Target: Half at 73 (short-term target). Half at 70 (longer-term target).
  • Stop: Half at 75.70. Half at 76.30 (above minor high).

Featured image courtesy of Shutterstock. 

Author:
http://www.linkedin.com/in/konstantindimov