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Risk-off flows are picking up on a fresh set of market risks these days, and I’m hoping to catch a long-term selloff on this pair.

Short NZD/JPY Idea

As Forex Gump shared in his weekly outlook, NZD/JPY has formed a double top pattern on its 4-hour chart to signal that a reversal from its uptrend is due. Price seems to have broken below the neckline and rising trend line to confirm that a downtrend is underway.

NZD/JPY 4-hour Forex Chart
NZD/JPY 4-hour Forex Chart

I’m bearish on this pair mainly because higher-yielding currencies like the Kiwi could keep reeling if the markets stay focused on the possibility of a global virus outbreak. After all, this could take a huge toll on China’s growth figures, as well as overall business sentiment and demand for commodities.

At the same time, the lower-yielding Japanese yen has been able to benefit from safe-haven flows, along with mostly upbeat medium-tier data dashing hopes of further BOJ easing.

The double top pattern is roughly 200 pips in height, so I’m expecting a 200-pip drop on NZD/JPY with this neckline break. However, it’s also important to note that the pair has yet to fill its weekend gap, so there could be a potential pullback opportunity here.

Looking at the pair’s volatility tool on MarketMilk reveals that it moves an average of 51.7 pips per day:

NZD/JPY Volatility from MarketMilk
NZD/JPY Volatility from MarketMilk

With that, I’m eyeing one short entry at market (71.25) and another at 72.25, with a stop at 73.25 and a profit target at the next area of interest around 69.75. What do you guys think?


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