An Intraday NZD/JPY Pennant is Creating Scalping Environment

Although the NZD/JPY pair moved over 250-pips in a two week period from the middle of November to early December, the pair has been entrenched in a consolidating pattern for the first six weeks of the new year, forming a pennant formation. Accordingly, in the first six weeks of 2011, the NZD/JPY has been trading in an unusually tight 150-pip range, with the daily ATR touching a multi-year low, a clear sign of limited volatility for the pair. With many of the major swings in the pair stoked by the People’s Bank of China changing interest rates, recent moves have been prompted by significant technical levels. As such, as the NZD/JPY pair flirts with significant support and resistance levels in the coming days, scalping opportunities have emerged.

Key Technical Levels

Charts created using Strategy Trader– Prepared by Christopher Vecchio

The NZD/JPY pair has been consolidating in recent weeks, with the ATR near a multi-year low, at 59. Accordingly, the consolidation has led to the formation of a pennant candlestick pattern. With the pair stuck in a 300-pip range since mid-December, it appears that there is room to scalp profits as many of the NZD/JPY pair’s moves have been technically driven, rather than fundamentally driven.

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Looking at the 60-minute charts, a descending triangle appears to have taken formation (based on closes, not highs and lows), a sign that a break to the downside is in the future. With the RSI still declining, as well as the Slow Stochastics still issuing a sell signal – based on a %K of 27.26 and a %D of 27.89 – our bias remains bearish for the NZD/JPY pair for the time being. To this end, the MACD Histogram has turned negative, a clear indication of bearish divergence.

Key Support/Resistance Levels to Watch

Quantitative Metrics

Heading into the next few hours, with an ATR of 59 on the daily charts, it appears that there is room to scalp as the pair remains bound inbetween its 50-SMA and 100-SMA for the time being. Currently, the pair sits above its 100-SMA, with the next level of significant resistance the 38.2 Fib retracement on the August 31 to November 22 move. The pair could push higher, however, as a break towards the 100-SMA and 38.2 Fib retracement will cause the NZD/JPY pair to break the lower envelope of the Bollinger Bands, at 62.913.

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Volatility / Activity Indicators

Possible Fundamental Affect

The docket is empty for both New Zealand and Japan into late tomorrow afternoon, despite many other G-7 countries facing significant fundamental risk via data releases throughout the data. However, at 21:30 GMT, New Zealand’s Business PMI will be released, followed by Producer Prices at 21:45 GMT, which should prove to be market moving data.

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Written by Christopher Vecchio, DailyFX Research.

To contact the author of this report, please send inquiries to: cvecchio@fxcm.com