This forex pair has been in consolidation mode for quite some time, but can a breakout from the triangle happen soon?
As you can see from the 4-hour chart below, NZD/JPY formed higher lows and found resistance at the 91.00 major psychological mark.
Here are the levels I’m watching for a bounce or a break.
NZD/JPY 4-hour Forex Chart by TradingView
Renewed dovish expectations for the BOJ have weighed on the Japanese yen in the past few days, as traders are warming up to the idea that the central bank will keep rates in negative territory for much much longer.
After all, inflation remains subdued while spending activity is still on weak footing. To top it off, the latest average earnings report revealed that wage growth was nearly nowhere to be seen, dampening hopes of seeing higher consumer price pressures down the line.
However, risk-off flows have allowed the lower-yielding yen to pare its losses early this week, as market players are also holding out for other top-tier catalysts.
With that, NZD/JPY retreated from its triangle resistance and is now dipping to the support zone at S1 (89.75) near the dynamic support at the moving averages.
Sustained bearish pressure could still pave the way for a test of the triangle support near S2 (89.07) and a major psychological mark. A break below this could set off a drop that’s the same height as the chart pattern, taking NZD/JPY down to the next bearish targets at S3 (88.45) then S4 (87.83).
Technical indicators are suggesting that buyers might not back down so easily, though.
The 100 SMA crossed above the 200 SMA to indicate that support levels are more likely to hold than to break. At the same time, Stochastic is starting to pull up from the oversold region to show that buyers are taking over while sellers are exhausted.
A bounce off the current area of interest could spur another test of the top near R1 (91.05) or even an upside break and move towards R2 (91.67).
In any case, make sure you practice proper risk management and keep a close watch on changing market sentiment when trading this one!