The NZDJPY exchange rate took a hard hit during the crash of 2007-2009, falling down from the heights of 97.70 to as low as 44.20. The first week of February 2009 gave the start of a huge recovery, which led the pair 50 figures higher to the 94.00 mark and is still in progress. However, there are at least four different technical reasons, which make us believe the bulls behind NZDJPY’s impressive comeback are running out of power.
First of all, the wave structure. As the chart shows, we could easily count three waves to the upside since the 2009 bottom, labeled I/A, II/B and III/C. We are even able to see two smaller degrees of trend within wave III/C. According to the Elliott Wave Principle, there are two options from now on: NZDJPY is in the middle of a five-wave impulse and we should prepare for its wave IV, or NZDJPY is about to finish an A-B-C zig-zag and the decline we are assuming could turn out to be even bigger.
Second, the rate has touched the upper line of a trend channel, which often serves as a resistance. If we add the horizontal resistance area around the 2007 top as a third reason, we will have enough evidence suggesting this is not the time to buy. Besides that, there is a fourth reason – the Fibonacci levels. Third waves usually are 1.618 or 2.618 times the length of the first wave. In this case, wave III/C is almost exactly 161.8% wave I/A.
If this analysis is correct, NZDJPY should soon be expected to form a top and reverse to the downside, probably towards the lower line of the channel around 80.00 or maybe even lower.
