Analys från DailyFX
EUR/JPY Technical Analysis: Setting Up In Front of ECB
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Talking Points:
- EUR/JPY Technical Strategy: Flat, previous short setup still active, all short-side targets cleared.
- EUR/JPY continued lower after breaking below confluent support; but new support at the psychological 130-zone may prove vexing for continuation setups.
- While long positions look unattractive given the veracity of the move, short positions can be challenging considering the lack of nearby resistance.
In our last article, we remarked on the ‘stick sandwich’ that was showing in EUR/JPY after a huge, confluent support zone had come into the market. A stick sandwich is a loosely applied price action term that denotes a lot of candlestick wicks over a defined period of time. This illustrates jumpiness on both sides of the market, as moves lower are quickly retraced by new buyers and moves higher are quickly retraced by new sellers. This type of price action can often show up near the top or bottom of a move, and as EUR/JPY continued to slosh around on the lower-boundaries of that support, we highlighted a short entry setup in that previous article.
But with price action having run into a new, major level of support at the psychological barrier of 130.00, traders may want to exercise caution if looking for trend-continuation entries. The 130 level initially came into EUR/JPY on Wednesday, in which buyers quickly jumped in to pull prices back to a daily close of 130.33. But another test on Thursday and Friday were unable to break prices lower, so this is now three days of support at a very relevant threshold; and while this isn’t a direct reversal entry, it could certainly be enough to give traders reason to wait for a more attractive sell-side entry in the early portion of next week.
The price of 130.67 could be particularly interesting for this purpose, as this is near the daily low of the spinning top formation that we discussed in our last article, as well as being near-term resistance throughout this week. So, we have a current example of old support becoming new resistance, and this can be a primary ‘price action tell’ for trend-resumption entries.
Also of relevance for the top-side of price action we have the minor psychological level of 131.00, which is also the projection of the current down-ward sloping trend-line (shown on the below chart in red).
With an enormously important ECB meeting on the docket for this coming Thursday, fully expect EUR/JPY (and most other Euro-pairs) to be thrown around with whichever direction the ECB gives markets; as in, if they actually increase or extend QE, that downside in most Euro-pairs is going to be really attractive. But if the ECB surprises and doesn’t make any moves, look out above: The Euro will likely spike with significance as much of the world is expecting something from Mr. Draghi.
The pertinence of such a theme in EUR/JPY is the fact that traders may be able to use the first few days of next week to let EUR/JPY rip higher so that they can short the pair from a significantly more attractive price (maybe even a 131.50 hit is in store as traders tighten up risk ahead of the ECB). But the big motivator here will likely be Thursday, so position as such, and be careful of chasing any moves ahead of the data, as significant vulnerability in many of these markets can show with any unexpected surprises.
Created with Marketscope/Trading Station II; prepared by James Stanley
— Written by James Stanley, Analyst for DailyFX.com
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What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
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EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
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Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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