Technical Sentiment: Bullish
Key Takeaways
- NZD adopts a bullish bias following strong Retail Sales, Core Retail Sales and Business NZ Manufacturing Index report;
- JPY is increasingly weak after a GDP contraction in the 2nd quarter and decreasing Core Machinery Orders.
- NZD/JPY bottomed at 85.75, offering multiple bullish signals this week.
Having confirmed the bullish bounce, NZD/JPY is about to focus on several key price pivot levels in the coming days and weeks.
Technical Analysis
On Friday, 8th August, NZD/JPY sold-off down to a major support level (85.75) and rapidly bounced higher afterwards. This recovery nearly formed a bullish Pin Bar, yet the daily close below the 200-Day Simple Moving Average failed to entice buyers further. Several days later the technical landscape is increasingly unambiguous, due to multiple bullish confirmations:
– Pair rallied above the resistance trendline and a small pivot zone at 86.70;
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– Price is now steady above the 200-Day Simple Moving Average;
– Rejection off 85.75 confirms the boundaries of a 5-month range pattern, indicating a strong appeal to re-test immediate resistance levels.
Because the sell-off from 89.68 happened in three bearish waves, respecting the rules of an Elliot Wave bearish cycle, we expect a minimum of two bullish corrective rallies in the coming days and weeks. These rallies should intertwine closely with the main pivot zones within the range – an observation based on NZD/JPY respecting all major horizontal S/R levels as of late.
Price is currently around 87.06, forging the first bullish wave, with a main target around 87.40/55. Stochastic is exiting oversold territory on the daily time frame, confirming the bottom and along with it the bullish scenario as well. A retracement is expected around 87.40/55, down to 87.00 or even 86.53 (200-Day SMA), before the second bullish wave comes into play with targets extending as high as 88.00 / 88.25.
A daily close below the 200-Day Simple Moving Average, currently priced at 86.53, will invalidate this bullish scenario completely.
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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets
