Potential Forex Reversal on NZD/JPY – July 28, 2014

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Potential Forex Reversal on NZD/JPY - July 28, 2014

Potential Forex Reversal on NZD/JPY - July 28, 2014

A potential forex reversal may take place for NZD/JPY, as a double top forex chart pattern can be seen on its daily time frame. Price has made a couple of attempts to break past the 89.50 area and failed, indicating that buyers are finding it tough to push the pair higher.

Last week, the RBNZ’s announcement regarding its pause in rate hikes weighed on the New Zealand dollar, leading to several forex reversal patterns across Kiwi pairs. RBNZ Governor Graeme Wheeler also mentioned that the Kiwi is trading at unjustified and unsustainable levels, leading most traders to liquidate their long positions in anticipation of a forex reversal.

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Forex Reversal Signal and Forecast

Price is still a few pips away from the neckline of the forex chart pattern, which is at the 85.50 minor psychological support level. A strong bounce off this floor could lead to the formation of another top at the 89.50 minor psychological level and a triple top chart pattern, which is still a valid forex reversal signal.

Inflation data from Japan has been stronger than expected, as the Tokyo core CPI showed a 2.8% gain while the national core CPI marked a 3.3% increase. However, BOJ policymakers cautioned that inflationary pressures might weaken later on, as the effect of the latest sales tax hike fades. Nevertheless, they insisted that the Japanese economy would stay resilient and that further easing is not necessary for now.

Risk aversion could keep weighing this pair down and lead to a break of the neckline support, which would confirm the start of a longer-term downtrend. The chart pattern is roughly 400 pips in height, which means that the potential selloff might be of the same height.

A bounce from 85.50 could also last by as much as 400 pips back to the top of the range. This could be spurred by traders returning to the positive carry offered by going long Kiwi.

To contact the reporter of the story: Samuel Rae at samuel@forexminute.com

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.