MACD Divergence and Overbought Signals: Time to Short NZDJPY?The Yen has been getting hammered across the board lately, and there’s no telling how far these pairs can go long-term.
However, in every strong uptrend, buyers eventually take profits, allowing the market to dip and providing opportunities to re-enter at better levels.
This scenario seems likely for NZDJPY. We've just popped above a key Monthly resistance level, the swing high from 2007. We’re likely to see buyers ease off and short sellers step in. Here’s why.
There are several signs that a reversal is imminent. First, we are extremely overbought across all higher timeframes. While this alone isn’t a signal to enter a trade, combined with the Monthly resistance level, it looks promising.
What gives me even more confidence in a sell-off is the Daily chart. It shows clear evidence of slowing buying momentum with choppy price action. After each new high, there’s an immediate sell-off. The most compelling signal is the MACD divergence on the Daily chart (see image below).
The combination of extreme overbought conditions and MACD divergence at this key Monthly level gives me confidence in entering a sell trade.
The next step is to identify potential drop targets and where buyers might regroup. Two key targets stand out:
The previous Monthly resistance, the 2014 high at 93.5, which is the first target for this sell setup.
The 0.236 Fibonacci retracement at 88.5, just above the 2022 highs that held for over a year before breaking out again at the start of this year. This area is likely to attract buyers as shown in the image below
My plan is to sell now and close 25% of my position every 200-pip drop. After the first drop, I will move my stop loss to the entry price.
Let me know your thoughts in the comments.
