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NZDJPY has been an interesting market to watch over the past year. The pair spent most of its time consolidating between March and September of last year, followed by the massive 1,000 pip rally that began in late October.
We then kicked off 2015 with an equally-impressive decline as the pair lost 950 pips in just four weeks. Since that time the pair has gradually risen higher, carving out a rising wedge that is best seen on the 4 hour chart.
Today’s price action has broken wedge support on a 4 hour basis. As we all know, this break leaves us watching for a retest of the level as new resistance. I would prefer to see some bearish price action on the 4 hour or daily time frame before committing to a short position.
The downside presents several areas of support for us to keep an eye on in the days ahead. Moving from the top down we have 88.73, 87.22, 85.84 and of course the 2015 low of 84.05.
I also want to point out that the formation from early March to present has the look of a head and shoulders pattern. Although the second shoulder is a bit higher than I like to see, it qualifies as the shoulders overlap and the head is higher than both shoulders.
If this truly is a head and shoulders, that puts the measured objective near 85.85. This makes for an interesting proposition as 85.85 was also the range low between May and August of 2014. However the rising wedge is first and foremost in terms of a tradable pattern.
Note: There is some NZD event risk at 6pm EST so be sure to take this into consideration when planning your trade.
Summary: Wait for a retest of the broken trend line as new resistance and then watch for bearish price action on a 4 hour basis. Key support comes in at 88.73, 87.22, 85.84 and 84.05.