NZDJPY, like other yen pairs, has enjoyed a respite over the past two weeks after a rocky start to the year, to say the least. But given the downtrend that is still in place, combined with the early 2016 selloff, the rally that began on January 20th was doomed to fail in short order.
In the case of the New Zealand dollar versus the Japanese yen, we don’t have to look beyond the 4-hour chart to see that the 570-pip rally is on the verge of breaking down.
Rising and falling wedges alike are handy technical patterns simply because a breakout is guaranteed. The only question is which direction the market will favor. That said, a rising wedge is very much a bearish pattern that represents exhaustion. Therefore, a break to the downside is the likely outcome.
From here, traders can watch for a close below wedge support. Such a break would first expose the 77.60 support level followed by trend line support that extends off of the 2009 low. At the moment, that level comes in near 74.30.
As a side note, I do feel that a break of the seven-year trend line is imminent given the current technical environment combined with other price structures that have already succumbed to an increasingly risk averse crowd.
So, while the current structure on the 4-hour time frame may provide short-term gains, the larger potential is likely to materialize on a daily close below the 74.30 handle.
