That’s a bold thing to say even when phrased as a question. But it isn’t unthinkable nor is it unfounded. I mentioned this particular pattern at the beginning of the year when there was good reason to believe that 2014 had carved out a major top.
At the time the pattern was in the early stages which prevented us from making anything more than an educated guess as to what might happen. However yesterday’s price action may have given us the missing puzzle piece.
Not only did the pair fail to hold on to the bottom of the rising wedge on the daily chart, it also broke horizontal support at 89.95. This confirms the breakout and also gives us an chance to watch for a selling opportunity.
But this break wasn’t altogether surprising. After all the pair’s bigger brother, NZDUSD, had already broken down several days prior. This made yesterday’s breakout on NZDJPY a little less remarkable.
But unremarkable doesn’t mean unprofitable…
The opportunity in front of us goes beyond a breakout of a rising wedge pattern. The pair is in the process of forming a much larger pattern that is best viewed on the weekly chart.
As you can see from the chart above, the head and shoulders pattern not only offers a much larger play, it gives us context to the more immediate rising wedge break that occurred yesterday (see chart below).
That said, a play this large must start somewhere and it’s important not to get ahead of ourselves. While a 1,500 pip drop isn’t unlikely, it also isn’t confirmed just yet. Only a break below the neckline would confirm such a large move.
For now we need to play the pattern in front of us while keeping our eyes and mind open to the bigger picture.
Summary: Watch for bearish price action on a retest of 89.95 as new resistance. Key support comes in at 88.96, 87.25, 85.80 and of course the neckline at 85.00. Break that and we could see a move to 75.00 over the next several months.