NZDJPY has been on an uptrend in the previous years but a long-term reversal pattern has formed recently. Price completed the right shoulder of its head and shoulders formation, indicating that a downtrend is brewing.
The pair is currently testing the neckline at the 74.00 major psychological level and might be due for a downside break if risk-off flows carry on. If so, price could fall by an additional 2,000 pips, which is roughly the same height as the chart formation.
For now, the 100 SMA is above the 200 SMA but a downward crossover might be ready to take place. RSI is on the move down, indicating a buildup in selling pressure, while stochastic is moving south as well.
If the neckline support holds for now, a quick bounce to the nearby resistance at 80.00 could take place. A larger rally could spur another test of the shoulder highs near 83.00.
The recent oil price slump has been weighing on higher-yielding currencies again these days, favoring the safe-haven Japanese yen. Crude oil oversupply concerns dominated the headlines when Iran and Saudi Arabia remained reluctant to trim production while the API report showed a buildup of 7.1 million barrels in stockpiles.
Earlier today, Australia printed a couple of weaker than expected reports, putting additional downward pressure on commodity currencies. There are no major reports lined up from New Zealand this week but next week has the Global Dairy Trade auction scheduled. A sharp decline in dairy prices could once again lead to more losses for the Kiwi, especially since demand from China is expected to slow down.
As for Japan, the CPI readings from Tokyo and the nation are up for release on Friday, with weak results likely to spur speculations of additional BOJ easing.
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