FxWirePro: NZD/JPY’s Triple Top Reminds Minor Downtrend And Falling Wedge Pattern Prolongs Major Downtrend – Trading & Hedging Setup

NZDJPY’s both minor and major trends have been bearish amid mild price jumps. Ever since the pair has formed shooting star at 65.280 levels, the minor trend has been sliding considerably below DMAs. As a result, it has formed triple top pattern with top 1 at 65.908, top 2 at 66.162 and top 3 at 65.607 levels (refer daily chart).

Although the interim bulls attempt to bounce back, the rallies are capped by 100-DMAs & could be deceptive as minor downtrend may resume anytime upon triple top pattern, current price remain below 21&100-DMAs despite prevailing upswings.

Both leading oscillators (RSI & stochastic curves) and lagging indicators (DMA & MACD) have been indecisive and hence, unlikely to support ongoing minor rallies.

On a broader perspective, the major downtrend has been sliding through falling wedge pattern which is bearish in nature (refer monthly chart), though interim bulls attempt to test wedge support but remain well below 21-EMAs. 

For now, more slumps seem to be on the cards as both leading and lagging indicators (RSI & stochastic curves), on this timeframe, signal intensified selling momentum and the bearish trend continuation respectively.

Trade tips: At spot reference: 64.480 levels (while articulating), contemplating above technical rationale, it is wise to deploy tunnel spread options strategy using upper strikes at 64.703 and lower strikes at 64.120 levels. The strategy is likely to fetch exponential yields than the spot moves as long as the underlying FX keeps dipping but remains above lower strikes.

Alternatively, shorting NZDJPY futures contracts of mid-month tenors have been advocated, on hedging grounds, we now like to uphold the same positions as the underlying spot FX likely to target southwards up to 59 levels in the medium run. Writers in a futures contract are expected to maintain margins in order to open and maintain a short futures position.