Trade Idea: NZD/JPY Double Bottom

I’m starting this brand new trading month with this neat pullback setup on NZD/JPY based mostly on diverging monetary policy biases between the BOJ and the RBNZ. If you recall, BOJ Governor Kuroda basically confirmed that they’re ready to increase their stimulus efforts during his Jackson Hole Symposium testimony while RBNZ head Wheeler cautioned against the pitfalls of rapid easing, particularly for New Zealand’s housing sector.

NZD/JPY Trade Idea

The pair formed a double bottom reversal pattern on its 1-hour time frame and has just recently broken past the formation’s neckline at the 74.00 major psychological level. Price seems to be hesitating from its climb for now so a pullback opportunity might materialize soon, especially since stochastic is still making its way down.

NZD/JPY 1-hour Forex Chart

NZD/JPY 1-hour Forex Chart

I drew a rising trend line to connect the latest lows of price action and noticed that the support area lines up with the broken neckline resistance. If this holds as support, NZD/JPY might be able to resume its rise to the recent highs and beyond. The double bottom is approximately 200 pips tall so the pair might make it up to the 76.00 handle.

The Kiwi may be under a bit of selling pressure for now after New Zealand reported a 2.1% drop in its overseas trade index for the second quarter while its trade buddy, Australia, saw a 5.4% slump in private capital expenditure for the same period. Then again, Japan has been printing more than its fair share of dismal economic figures as well so BOJ easing expectations could remain in play.

I haven’t set actual entry orders yet since I’m planning on watching how price reacts to the 74.00 area first. If I’m able to enter around that area, I’ll set my stop below the support at 72.00 then aim for 76.00 for a simple 1:1 play. As always, don’t risk more than 1% of your account on a single trade and make sure you read our risk disclosure if you’re thinking of taking the same setups.

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