Since closing above the seven-month trend line resistance on November 2nd, the NZDJPY has been on a tear. If we include yesterday’s high, the pair has rallied 850 pips in just 30 trading days.
Even more impressive is the fact that of those 30 sessions only seven have closed down. And one was caused by the US elections shake up when the pair rallied 300 pips from session lows, so I’m not sure we can call that a win for the bears.
With that said, there is some cause for concern if you’re an NZDJPY bull.
The 4-hour rising wedge that extends from the November 9th volatility signals that buyers could be tiring. The pattern looks to be late-stage, which means there isn’t much room left and a breakout is, therefore, imminent.
On top of that, the pair carved out a bearish engulfing candle during yesterday’s session. The formation comes at a confluence of resistance near 83.30.
The weekly chart below shows the intersection of the two levels.
Under normal circumstances, we would use the bearish engulfing day at resistance as our signal to go short.
However, because the 4-hour wedge (below) is still intact, it may be best to wait for a close below support. This would clear the path for a move lower while still allowing for a favorable setup.
A close below wedge support would open the door for a move toward the 81.00 handle. This area served as a key pivot from July to mid-December of 2015. A break below that would target 79.37 followed by 77.80.
There’s no denying that the NZDJPY is in an uptrend. And although I’m not usually one to trade against the grain, this combination of bearish patterns is difficult to ignore.
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