Trading the Waves and Pivots on NZD/JPY

August 14, 2014

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

 

 

 

 

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