NZDJPY: Sharp Short-Term Pullback Finds Support on Medium Term Bullish Trend-Line
The candle chart below shows the price history of New Zealand dollar versus the Japanese yen over the medium term. This currency pair is known as NZDJPY and is trading at 80.94 (as of publication) and close to session highs of 81.32 following a sharp drop over three of the last trading session late last-week which ended lower for the NZDJPY pair.
Yesterday and today have shown slight support on a medium term bullish trend-line (point 5 in white on chart) which could provide enough to reverse the drop of the last few trading sessions and avert a bearish continuation along a short term channel line (point 1 in magenta).
In a previous article on the pair, last time it was covered in the Ideas You Can Trade series, the trajectory of the short term bullish momentum was plotted to intersect near 84.00 by October 20 - a prediction that ended up being two days early as 84.00 was reached briefly on the 22nd before returning along its current path. In addition, last Friday’s low was supported on 80.50 – a level noted as potential horizontal support in the above mentioned post – and which could provide support yet again if the current support line (near point 5) fails.
While a reversal on the medium term bullish line is likely, consider the angle of the line is less steep than the very short term bullish lines (point 3 in yellow), the NZDJPY could follow in a somewhat sideways market range over the next few sessions, unless a more definitive move occurs whether it be bullish or bearish along a steeper line such as point 3 or point 1 respectively
If a steep bullish reversal follows along point 3, the trend pattern of the medium term may repeat with a target near the upper resistance line of medium term bullish channel (point 5 –upper line).
If the lower support line of the medium term bullish channel fails (also point 5 – but lower line), the current bearish trend line (point 1) may provide a path down towards the upper resistance line of the medium term bearish channel (point 4 in red) near 76.00 in early November.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 81.58 with a Limit to take profit @ 82.36 and a stop-loss @ 81.20 Risk/Reward Summary: Limit risk = +78 pips profit / (-38) Stop-loss risk = Gain to Loss ratio = 2.05
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 80.39 with a Limit to take profit @ 79.75 and a stop-loss @ 80.77 Risk/Reward Summary: Limit risk = +64 pips profit / (-38) Stop-loss risk = Gain to Loss Ratio = 1.68
Medium term daily candle chart: