NZDJPY: Bullish Support Nearing as Pair Descends Short Term Bearish Channel
The candle chart below shows the price history of New Zealand dollar versus the Japanese yen over the medium term. This pair is known as NZDJPY. The pair is trading at 81.08 (as of publication) and just off session highs of 81.14 as FX markets have closed for the week.
The currency markets were relatively calm despite a sharp move on Friday in the majors at noon in the NY session. In a previous post from the WorldWideMarkets Community, Joseph Trevisani, Chief Market Strategist of WorldWideMarkets, highlighted optimism extended by House Speaker John Boehner who said that he is determined to avert a US default. For the sake of the markets, hopefully this is not the "calm before the storm".
The NZDJPY pair also calm today, had continued down a short term bearish channel (point 1) where it is currently testing the upper resistance line and poised to either break above or return down towards the support line of the medium term bullish channel (point 5 in white).
Support was found near today's low of 80.56 just off the horizontal static trend line of 80.50 which over the medium term has provided both resistance and support on several occasions. A linear regression analysis indicator plotted over the last 200 periods (point 7 in blue) has lost its curvature in comparison to the previous article on the NZDJPY earlier last month where the angle was strikingly bearish before the breakout to the upside occurred (along point 4).
If this horizontal support level of 80.50 can be breached , the pair may trade closer towards 79.80 near the support line of the medium term channel (point 5) and with further support- in the case of sustained bearish momentum- near 77.00 along the upper resistance line of the medium term bearish channel (point 4 in red).
If the upper resistance line of the short term bearish channel (point 1) can be overcome, a bullish continuation along a very short term bullish line (like point 3 in yellow) could develop following such a break-out. If this happened, the upper resistance line of the medium term bullish channel (point 5) may be targeted near 84.00 by the middle of October.
Very short term trend-followers may expect the short term bearish momentum to continue whereas contrarian traders may be expecting the trend to reverse if a break out occurs (on point 1).
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 81.20 with a Limit to take profit @ 81.88 and a stop-loss @ 80.80 Risk/Reward Summary: Limit risk = +68 pips profit / (-40) Stop-loss risk = Gain to Loss ratio = 1.70
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 80.41 with a Limit to take profit @ 80.01 and a stop-loss @ 80.79 Risk/Reward Summary: Limit risk = +40 pips profit / (-38) Stop-loss risk = Gain to Loss Ratio = 1.05
Medium term daily candle chart: