NZDJPY Countertrend Setup on Profit-Taking

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NZDJPY has tumbled all the way down to the bottom of its descending channel on the 4-hour time frame to test support. With the end of the trading week approaching, profit-taking activity could be seen as traders book their gains on latest positions.

In that case, price could bounce to the mid-channel area of interest at 74.00 or the top of the descending channel at 76.00. The 100 SMA is crossing below the longer-term 200 SMA to indicate that the path of least resistance is to the downside. This confirms that the selloff is more likely to resume than to reverse. These moving averages are also near the top of the channel to add strength as a ceiling.

RSI is on the move down to show that sellers have the upper hand, but the oscillator has also reached oversold territory. This means that bears are already tired and may let bulls take over. Similarly stochastic is moving down but has also reached oversold levels to reflect bearish exhaustion. Once both oscillators start turning higher, buying momentum could return and spur a correction.

With that, it could be worth trying to catch a short-term countertrend play on a bounce off this support zone, although of course it does carry a considerable amount of risk. The downside momentum has been particularly strong since it has been spurred by a top-tier catalyst, and one that turned out to be a surprise at that.

While the RBNZ decided to keep rates on hold at 1.75% as expected, the tone of their statement was more dovish than expected. The central bank downgraded growth and interest rate forecasts while also predicting that the Kiwi’s exchange rate could fall. This was followed by another round of downbeat remarks from RBNZ official McDermott who confirmed that they’re not looking to hike anytime soon.

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