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NZDJPY: Is the Downtrend Over or Just Beginning?

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NZDJPY has been on a tear so far during the month of October. In fact since reaching the measured objective of the sixteen-month head and shoulders pattern back in August, the pair has recovered an impressive 1,000 pips.

At first glance then it would appear that the downtrend that began in April is coming to an end. However it’s important to remember the kind of price structure that represents a trending market, namely where the highs and lows fall.

So far, NZDJPY has been carving out lower highs and lower lows since late 2014. This is still the case despite the pair’s 1,000-pip ascent over the last two months.

But this is just a general idea about the bigger picture. Something that is more actionable for traders is the key level that the pair is fast approaching. The 83.25  handle is not only the last swing high, albeit a minor one, it is also the October 2014 low.

In addition, it represents the 50% retracement from the 2014 high to the recent low this past August. Needless to say, 83.25 is sure to attract a lot of attention from the bearish camp.

That said, we all know that it is never a good idea to blindly sell into a strong rally, even if the level at which we are selling has a strong degree of confluence. A more favorable approach would be to wait for bearish price action to form at this level, which would indicate a strong level of bearish conviction and could lead to another move in the direction of the larger downtrend.

Of course if the bulls manage a daily close above 83.25, it would negate this idea and expose 84.65, which would fill the gap that formed on June 26th.

Do keep in mind that New Zealand reports their trade balance for the month of September today at 5:45pm EST. A solid reading could push prices toward our key level, giving us a chance to watch how the market reacts.

Summary: Watch for bearish price action on a retest of 83.25. Key support comes in at 80.60, 78.50 and 75 (former measured objective). Alternatively, a daily close above 83.25 would expose the next resistance level at 84.65.

NZDJPY key resistance in focus

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