Two weeks ago, my colleague Fawad Razaqzada presciently identified a symmetrical triangle breakdown in EUR/JPY, arguing that if 140.00 support was broken, “it is anyone’s guess how far the pair could fall.” Since then, the pair has broken below 140.00 and continued down to test the 200-day MA near 138.00. While we remain concerned with the longer-term outlook for this pair, the technical evidence suggests we could see a near-term bounce from this level.
Looking to the daily chart, the pair put in a clear Bullish Pin Candle*, or hammer, pattern yesterday. This formation shows an intraday shift from selling to buying pressure and is often seen at near-term lows in the market. At the same time, the daily RSI indicator turning higher from oversold territory for only the second time this year, suggesting that trade has been extremely one-sided over the past few weeks. The combination of a clear candlestick pattern, long-term MA support, and an oversold market is the textbook recipe for a short-term rally, though the downward trending MACD suggests the medium-term momentum remains with the bears.
If a bounce does emerge, the first major hurdle for EUR/JPY will be previous-support-turned-resistance at 140.00, which is also an important psychological/option-related level. A break above that barrier could expose bearish trend line resistfance off the December 2013 highs around 142.00. On the other hand, more weakness in the USD/JPY could take EUR/JPY down with it; a drop through 200-day MA support and the 78.6% Fibonacci retracement at 137.80, could pave the road for a continuation down to the 2014 low near 136.20 next.
*A Bullish Pin (Pinnochio) candle, also known as a hammer or paper umbrella, is formed when prices fall within the candle before buyers step in and push prices back up to close near the open. It suggests the potential for a bullish continuation if the high of the candle is broken.
Comments
Post a Comment