Euro May Fall Against Japanese Yen If Chart Setup Plays Out
EUR/JPY TRADING Strategy: BEARISH
- Euro may be forming a top vs Japanese Yen below 123.00 level
- Break of Rising Wedge floor sought as confirmation of reversal
- Repeat of 2-year downtrend dynamics implies move sub-111.00
The Euro may be preparing tun lower against the Japanese Yen following a three-month recovery, resuming a two-year downtrend. The rise has taken the shape of a Rising Wedge chart pattern, which typically carries bearish implications. A Shooting Star candlestick on a test of resistance in the 122.50-66 area coupled with negative RSI divergence speaks to ebbing upside momentum, which may precede the formation of a top.
A daily close below Wedge support – now at 120.51 – would make a compelling case for confirmation of reversal, which traders may interpret as triggering an actionable selling opportunity. Neutralizing selling pressure in earnest probably requires a push above the outer layer of downtrend resistance set from February 2018, which now coincides with the top of the at 123.30-124.28 inflection zone.
Averaging prior downswings within the same trend to establish something of a baseline for what the next move lower might look like implies a decline of 9.78 percent. Extrapolating such a descent from the most recent swing high puts prices just below the 111.00 figure. Intriguingly, it would also place them within a hair of the major June 2016 swing bottom at 109.54.
EUR/JPY weekly chart created with TradingView
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.