Forex Trade Idea: NZD/JPY Head and Shoulders

With a couple of dismal reports from New Zealand and a dovish RBNZ bias, I’ve been on the hunt for a short Kiwi forex setup. Earlier today, the Global Dairy Trade auction showed a 7.4% drop in prices then New Zealand reported a surprise 0.4% decline in employment for Q3. And I seem to remember a little something about RBNZ head Wheeler saying that “some further reduction in the OCR seems likely”

Anyway, here’s what I found on NZD/JPY:

As you can see from the 1-hour forex chart below, NZD/JPY just completed a head and shoulders reversal pattern. Price is currently testing the neckline around the 80.00 major psychological mark and might be due for a breakdown soon.

NZD/JPY 1-hour Forex Chart

NZD/JPY 1-hour Forex Chart

The chart formation is approximately 300 pips tall so the resulting selloff could last by the same amount, taking the pair down to the 77.00 area or much lower. If risk aversion comes back in the game, price might even head down to its yearly lows around the 74.50 levels!

Zooming out to the longer-term time frames shows that the reversal pattern lines up with the 50% Fibonacci retracement level on this year’s selloff and an area of interest… which happens to be near the neckline of that HUGE head and shoulders formation. Stochastic is still heading south, which means that Kiwi sellers are in control of forex price action.

NZD/JPY Daily Forex Chart

NZD/JPY Daily Forex Chart

I’m thinking of shorting on a break of the head and shoulders neckline at 80.00 with a stop around 83.00. I’ll be aiming for an initial 300-pip profit target while staying open to the idea of trailing my stop by the same amount and setting my sights on the yearly lows. What do you guys think?

Cheers!

Happy time

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