To receive James Stanley’s Analysis directly via email, please sign up here.
Talking Points:
- EUR/JPY Technical Strategy: Intermediate-term: congested; short-term: bullish.
- EUR/JPY put in a strong bullish-continuation move after setting a ‘higher-low’ around ¥116.50.
- If you’re looking for trading ideas, check out our Trading Guides. If you’re looking for shorter-term ideas, check out our IG Client Sentiment.
In our last article, we looked at an aggressive bullish reversal in EUR/JPY as price action ran into a key zone of potential resistance around ¥117.50. Going along with this strong move-higher was price action breaking above a down-ward sloping trend-line that had held resistance in EUR/JPY for over a month.
The primary initiator of the move were French elections over the weekend; as this weekend’s election results ushered-in a return of risk tolerance. And with this return of risk tolerance came another bump-higher in equities, a bump-lower in Gold prices, and another leg of weakness for the Japanese Yen.
The bullish move in EUR/JPY extended on Tuesday to cross-above the pivotal ¥120.00 level; but another level/zone of resistance is showing that may bring pause to the continuation of the bullish move. The level at ¥121.95 is the 50% Fibonacci retracement of the ‘Abe-nomics’ move in EUR/JPY, taking the low from 2012 up to the high in 2014. But very near this level is another key element of resistance, as a down-ward sloping trend-line that’s held the highs in EUR/JPY since mid-December of last year is projected just-above this area.
Chart prepared by James Stanley
With Central Bank meetings from both Europe and Japan scheduled to take place in the next 24 hours, EUR/JPY can remain volatile in the near-term. This would be an idea time frame for a ‘new phase’ of price action to take place, whether that be breaking above the longer-term ‘pennant formation’ in the pair; or resistance at current levels and continuing to dig deeper within the congestion pattern showing on longer-term charts.
Chart prepared by James Stanley
For those that do want to play for the top-side break of the bear pennant formation, there are a couple of different ways of doing so. Traders can look for a top-side break of the pennant (which may happen around tomorrow’s Central Bank meetings) to show further continuation potential; after which this current zone of resistance around ¥121.95 could be re-assigned as support. This would allow for the resolution of a key resistance zone to further confirm the potential for a sustained bullish-move.
Alternatively, traders can watch for inside price action to develop ‘higher-low’ support around that ¥120.00-handle. This is a confluent zone for EUR/JPY as just below the psychological level of 120 we have the 61.8% retracement of the ‘big picture’ move in EUR/JPY, taking the low from the year 2000 up to the high set in 2008.
Chart prepared by James Stanley
— Written by James Stanley, Strategist for DailyFX.com
To receive James Stanley’s analysis directly via email, please SIGN UP HERE
Contact and follow James on Twitter: @JStanleyFX