NZDJPY recently broke below the bottom of the descending triangle pattern on its 4-hour time frame and is showing signs of a pullback. 

Price could retreat until the Fibonacci retracement levels which are close to the broken triangle support.

In particular, the 61.8% Fibonacci retracement level lines up with the former support zone near the 92.00 major psychological resistance. Stochastic has just reached the oversold area and is starting to move north, indicating a pickup in buying pressure.

If bulls are strong enough, they could trigger a test of the 92.00 major psychological resistance before the pair resumes its drop. From there, NZDJPY could test the recent lows at the 90.00 handle and perhaps go for new ones.

However, a strong return in buying momentum could lead to a test of the triangle resistance at the 94.00 major psychological level. Even stronger bullish pressure could turn to an upside break and further gains for NZDJPY.

Earlier today, Australia reported a stronger than expected jobs figure and led to a bounce for the New Zealand dollar. After all, positive developments in the Australian economy could also be good for New Zealand due to the country’s trade ties and proximity.

There are no other event risks for this trade setup today, suggesting that risk sentiment might play a key role in directing price action. Risk aversion and further commodity price declines could mean more losses for the pair and a shallow retracement, possibly until the 38.2% Fibonacci level.

As for Japan, there are also no top-tier reports lined up for today and tomorrow, also indicating that sentiment will mostly be responsible for any large price moves. Unless there are any changes though, the downtrend could carry on or consolidation could be seen.

By Kate Curtis from Trader’s Way