The series of lower highs since July, Fibonacci resistance and the presence of the 200 day SMA all point lower for NZDJPY. Add to the mix the wave pattern in the Dow; which suggests that the recent rally will be deeply retraced. The result is deep trouble for NZDJPY and carry in general.
The daily chart of NZDJPY shows that the pair has run into stiff resistance from the confluence of the 61.8% of 91.42-80.31 at 87.18 and the 200 day SMA (just above the Fibo). The series of lower highs since the July top at 97.74 and today’s spinning top candle also does not bide well for bulls near term.
Although we do expect a decline to challenge the support line drawn off of the August and November lows near 82.00, there is still potential for a bullish triangle to end with a thrust to the upside. The other counts are more bearish near term and argue for continued weakness through the November low at 80.31. Keep on top of the pattern unfolding in this pair by reading the Yen crosses technical report every Tuesday. The Elliott Wave Forum and the Carry Trade forum are also helpful resources.
One reason why we expect weakness in the carry trade next week is the pattern that is unfolding in the Dow. The recent rally from 12,724.82 challenged and stalled at the 61.8% of the decline from the October top. The rally is in 3 waves (corrective) but is likely just the first corrective leg in a more complex correction. Since the rally is in 3 waves, we know that a large flat will probably unfold. In this case, it is likely that we see price decline to at least 61.8% of the recent rally (which would be 13,085). A deep decline such as this suggests deep trouble for carry.