NZDJPY: Resistance Found Near Today's High that Previous Reversed Trend on October 22
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 83.18 (as of publication) and close to session lows following sharp resistance near highs of 84.06 earlier today.
Yesterday was relatively quite as markets opened for the week, following three consecutive bullish sessions at the end of the previous week, and with today's trading finding resistance for the NZDJPY pair met near previous highs around 84.00 in late October, this can prove again to reverse the short term bullish momentum (point 3 on chart in yellow) as had occurred last month near this level.
The overall essence of the medium term trend has been along the support line of a medium term bullish trend-line (point 5 in white) which was noted previously as sufficient to reverse the drop discussed in a previous article. Overall the trend is that of an ascending stair-case with the top of the newest step reached today.
If today's high can be overcome, the bull's may come in to go long and buy NZDJPY expecting a continuation up the current very-short-term bullish trend line (point 3 in yellow) with the next static target near 86.30, whereas if this resistance met near 84.00 today can hold, then the bears may start selling expecting a reversal along a line such as a short term bearish channel (like point 1 in magenta).
If the latter of these two situations play out, over the next few weeks, the lower support line of the medium term bullish channel (also point 5 – but lower line) may be tested and if it fails to hold then what I referred to as the ascending stair-case formation may turn into an elevator shaft going down with the bearish trend line (such as point 1) providing a path towards the upper resistance line of the medium term bearish channel (point 4 in red) near 74.00 by early December. This line (point 4) is set to intersect near the long term bearish support line (point 2 in dark red) by the end of the year.
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 84.11 with a Limit to take profit @ 84.57 and a stop-loss @ 83.71 Risk/Reward Summary: Limit risk = +46 pips profit / (-40) Stop-loss risk = Gain to Loss ratio = 1.15
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 82.89 with a Limit to take profit @ 82.52 and a stop-loss @ 83.15 Risk/Reward Summary: Limit risk = +37 pips profit / (-26) Stop-loss risk = Gain to Loss Ratio = 1.42
Medium term daily candle chart: