NZD/JPY Testing its Flag Pattern Support

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NZD/JPY Testing its Flag Pattern Support

The 4H NZD/JPY chart shows a pair that has been in a rising channel for about a month rallying from the August low around 85.73 to a high this week at 88.05. After the RBNZ monetary policy statement, the kiwi showed some weakness across the board. Now as we wrap up the week and get into the 9/12 Friday US session, NZD/JPY is trading sideways-bearish, with pressure on the rising channel support.

NZD/JPY 4H Chart 9/12
nzdjpy 4h chart 9/12
(click to enlarge)

Now, the bullish market is still in play and there will need to be a few things to shift it.
1) First we need a break below 87.25, which would clear the channel support and the 100-, and 50-period simple moving averages (SMAs) in the 4H chart.
2) A break below 87.00 would obviously add to the bearish case as it would clear below the 200-period SMA as well.
3) We should see the RSI dip below 40, and preferably even below 30.
4) During these bearish attempts, a bullish pull back can also help confirm the bearish outlook, IF it respects resistance around a common high around 87.60.

Looking at the 4H chart, if the channel breakout is successful, NZD/JPY would have the 85.73 in sight.

When we look at the daily chart, we can see a bearish outlook from a larger perspective. The “channel” we saw in the 4H chart is essentially a large flag or pennant pattern that stalled a decline in July from 89.68 to 85.73. Note that the daily RSI is holding below 60, which reflects maintenance of the bearish momentum established by that July decline.

NZD/JPY Daily Chart 9/12
nzdjpy daily chart 9/12

(click to enlarge)

Double Top, ABC Projection:

A break below 87.00 would clear below the 200-day SMA and revive the bearish bias. In the daily chart, we can see further downside below the 85.73 low. But first of all, we should note that a break below 85.73 also forms a double top, adding to the case for a bearish market at least in the short-term.

An ABC correction with A=C mode targets the 84.10 level. 

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.