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New Zealand Dollar / Yen Reverses Sharply

New Zealand Dollar / Yen Reverses Sharply

2012-02-15 23:59:00
Jamie Saettele, CMT, Sr. Technical Strategist
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DailyFX Edge – Powered by EidoSearch Inc.

DailyFX Edge combines the opinion of an experienced market analyst with the science of EidoSearch, a powerful pattern recognition tool.

NZDJPY Daily Bars

New_Zealand_Dollar_Yen_Reverses_Sharply_body_nzdjpy.png, New Zealand Dollar / Yen Reverses Sharply

Prepared by Jamie Saettele, CMT

A key reversal unfolded Wednesday in the NZDJPY. Viewed in light of the 5 wave advance from the December low, a sharp decline may be around the corner (Elliott wave theory posits that moves in 5 waves are followed by at least a 3 wave move in the opposite direction). In this case, the 5 wave move also channels perfectly. Downside levels of interest in this case are former resistance levels at 6420 and 6380 (20 day average is at 6380 today), the 38.2% retracement at 6311, and 1/30 low at 6230 (50% retracement is at 6218).

EidoSearch – 10 Day Backtest

A search for patterns that match the series of closes from 12/15/11 to 2/14/12 returns 36 matches with a score of 70 or better. 10 days later, the NZDJPY had advanced 14 times by an average of 1.44% and declined 22 times by an average of 3.11%. The largest advance after 10 days was 2.99% and the largest decline after 10 days was 7.64%.

New_Zealand_Dollar_Yen_Reverses_Sharply_body_Picture_6.png, New Zealand Dollar / Yen Reverses SharplyNew_Zealand_Dollar_Yen_Reverses_Sharply_body_Picture_7.png, New Zealand Dollar / Yen Reverses Sharply

Summary and Trade Idea

The EidoSearch test results confirm the bearish implications from the 5 wave rally and daily key reversal. In other words, the edge over the next 10 days is with bears. Still, a look at the short term pattern does reveal potential for a final thrust above 6611 before the larger decline (see below). It is also dangerous to short mid week highs when the low is on a Monday (as the probability lies with the corresponding price extreme occurring on a Friday). As such, I favor shorting a new high (above 6611) or a pullback AFTER a drop below Monday’s low (6423). Follow me on Twitter @JamieSaettele for updates.

NZDJPY 60 Minute Bars

New_Zealand_Dollar_Yen_Reverses_Sharply_body_nzdjpy_1.png, New Zealand Dollar / Yen Reverses Sharply

Prepared by Jamie Saettele, CMT

--- Written by Jamie Saettele, CMT, Senior Technical Strategist for DailyFX.com

To contact Jamie e-mail jsaettele@dailyfx.com. Follow me on Twitter @JamieSaettele

To be added to Jamie’s e-mail distribution list, send an e-mail with subject line "Distribution List" to jsaettele@dailyfx.com

Jamie is the author of Sentiment in the Forex Market.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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