Regardless of the onset of the widely anticipated Santa Claus rally in the lead-up to Christmas, Friday’s doji bar the daily chart for NZDJPY has given us a number of reasons to be content with taking this cross-pair short.
The 69.00 level it is bashing its head against a horizontal level of ‘hard’ resistance that has remained unbroken for over two years and represents a decent level of supply – where people who have bought the Kiwi Dollar and sold the Japanese Yen would want to realise their profits in anticipation of the bounce off the level being far more likely than the breakout, regardless of the seasonal picture.
In fact, statistics reveal that the bounce of any arbitrary level is 70% more likely than the breakout, and as the reward/risk profile is infinitely more with the former, it makes commercial sense to pursue such an opportunity – one we have been waiting for since March this year.
Friday’s ‘doji’ bar reacting to the level reflects, by definition, the indecision currently in play at this price point and signals a potential shift of power between buyers and sellers in the market is tilting in favour of the bears. We also have RSI divergence (for those of you who bother to look at such things)...and, the makings of a head and shoulders formation onthe hourly timeframe.
We would prefer a high test at such a level, but will shall place our ‘sell’ order below Friday’s low, safe in the knowledge that I will only be filled if the neckline of the head and shoulders on the hourly is broken...and, thus, is confirmed as a reversal pattern perpetuating a move onthe higher timeframes.
The reward to risk potential on this trade is epic, with atarget at: 60.83 – giving it a reward/risk of: 16:1 risking 1%...or 32:2 (risking 2%)