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Yen Crosses-Reversal Risk is High

By , Sr. Technical Strategist
21 March 2012 18:23 GMT

EURJPY Daily Line

Yen_Crosses-Reversal_Risk_is_High_body_eurjpy.png, Yen Crosses-Reversal Risk is High

Prepared by Jamie Saettele, CMT

The EURJPY has rallied over 1400 pips from its January low and nearly touched the 10/31/11 (intervention high) today. The proximity of the October pivot combined with the impulsive (5 wave) structure of the advance and waning upside momentum (RSI divergence) warn of a turn lower from current levels. Bigger picture, the 5 wave advance does suggest that a major low is in place and that the coming decline will prove corrective. Levels to keep in mind in the coming weeks are the former 4th wave low at 10565 and former resistance at 10220 and 10330.

GBPJPY Daily Line

Yen_Crosses-Reversal_Risk_is_High_body_gbpjpy.png, Yen Crosses-Reversal Risk is High

Prepared by Jamie Saettele, CMT

The GBPJPY has rallied over 1600 pips from its January low. The impulsive (5 wave) structure of the advance and waning upside momentum (RSI divergence) warn of a turn lower from current levels. Bigger picture, the 5 wave advance does suggest that a major low is in place and that the coming decline will prove corrective. Levels to keep in mind in the coming weeks are the former 4th wave low at 12650 and former resistance at 12280.

EidoSearch is a powerful pattern recognition tool.

EURJPY EidoSearch – 10 Day Backtest

A search for patterns that match the series of closes from 01/15/12 (origin of advance) to 03/21/12 returns 47 matches with a score of 80 or better. 10 days later, the EURJPY had advanced 17 times by an average of 1.25% and declined 30 times by an average of (1.56%). The average net change after 10 days was (.54%).

Statistics

Yen_Crosses-Reversal_Risk_is_High_body_Picture_4.png, Yen Crosses-Reversal Risk is High

Chart

Yen_Crosses-Reversal_Risk_is_High_body_Picture_3.png, Yen Crosses-Reversal Risk is High

GBPJPY EidoSearch – 10 Day Backtest

A search for patterns that match the series of closes from 01/15/12 (origin of advance) to 03/21/12 returns 45 matches with a score of 80 or better. 10 days later, the GBPJPY had advanced 13 times by an average of 1.96% and declined 32 times by an average of (1.69%). The average net change after 10 days was (.63%).

Statistics

Yen_Crosses-Reversal_Risk_is_High_body_Picture_2.png, Yen Crosses-Reversal Risk is High

Chart

Yen_Crosses-Reversal_Risk_is_High_body_Picture_1.png, Yen Crosses-Reversal Risk is High

Summary

The EidoSearch test results confirm bearish implications from the 5th wave interpretation in the EURJPY, GBPJPY and Yen crosses in general. From a sentiment perspective, recent COT figures indicate that the rest of the world has caught on to the short Yen (long Yen cross) trade. A saturated market is a market at risk of a sharp reversal (USDJPY pivot is now at 8300).

Given the tendency for market trends (currently bullish) to persist into month end, I favor shorting Yen crosses in early April.

--- Written by Jamie Saettele, CMT, Senior Technical Strategist for DailyFX.com

To contact Jamie e-mail jsaettele@dailyfx.com. Follow me on Twitter @JamieSaettele

To be added to Jamie’s e-mail distribution list, send an e-mail with subject line "Distribution List" to jsaettele@dailyfx.com

Jamie is the author of Sentiment in the Forex Market.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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21 March 2012 18:23 GMT