NZDJPY has been on a steady downtrend for almost a month, yet it looks like a reversal FX signal can be seen on its short-term time frame. Price has formed an inverse head and shoulders formation, which is often considered a classic reversal FX signal in technical analysis.
The pair has yet to break above the neckline of the pattern at the 87.50 minor psychological level before confirming the FX signal reversal. Stochastic is moving lower though, indicating that selling pressure is present for now and that price might pullback a little lower before heading back up.
Once the oscillator crosses above the oversold area, price could start making another test of the neckline resistance. A breakout could lead to a longer-term rally of as much as 150 pips, which is the same height as the FX signal reversal chart pattern.
FX Signal Scenarios
A sharper selloff, on the other hand, could be an FX signal that price is not ready for more gains just yet. NZDJPY could head back to the nearby support zone at the 86.50 minor psychological level or perhaps all the way down to the lows at 86.00.
New Zealand is set to print its trade balance this week and might show a large deficit after dairy prices and demand have fallen recently. Recall that prices of milk products have been dropping for more than half a year, weighing on purchases and payouts to farmers. In turn, this could hurt trade revenues and consumer spending later on.
Meanwhile, BOJ Governor Kuroda’s Jackson Hole testimony has been a bearish FX signal for the yen, as he said that they are open to adjusting policy if inflationary pressures weaken. He also noted signs of weakness in the labor market, such as slow wage growth and reliance on part-time jobs.
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