NZDJPY has formed higher lows and higher highs to create a rising channel on the 4-hour time frame. Price is testing the resistance and looks due for a pullback to the bottom at the 78.50 minor psychological mark.

The 100 SMA is above the 200 SMA to confirm that the path of least resistance is to the upside or that support is more likely to hold than to break. The 100 SMA lines up with the 61.8% Fibonacci retracement level at 78.82 to add to its strength as support while the 200 SMA coincides with the channel bottom.

Stochastic is indicating overbought conditions, though, and turning lower would mean that sellers are taking over. RSI also seems to be topping out at the overbought zone and could be indicative of a pickup in selling pressure.

A break past the channel top, on the other hand, could spur a steeper climb for NZDJPY.

There are no major reports from both the New Zealand and Japanese economy for the rest of the trading week, so price action could hinge mostly on risk sentiment.

The main event that could impact demand for higher-yielding assets is the US core PCE price index report, which is slated to show stronger inflationary pressures. Recall that the Fed signaled willingness to taper asset purchases, which could then pave the way for higher borrowing costs later on.

If that’s the case, riskier assets like the Kiwi could take hits as rising interest rates would dampen business and consumer activity. On the flip side, the safe-haven yen might be able to take advantage of a pickup in risk aversion.

On the other hand, weaker than expected core PCE price index data could calm investor fears of Fed tightening in the near-future, which could then keep NZDJPY afloat.