EUR/JPY Flirting with Break of Big Support, Double-top Confirmation
EUR/JPY is on the verge of confirming the double-top created between the September and October peaks. The support zone in the 13190/40 vicinity is a strong one, which first acted as resistance back in August before more recently becoming a steadfast level of support. A daily close below will open a path up towards a swing-low in September at 12937, then an even more important swing-low in the 12700s created in August. The latter, especially, leaves room for a good risk/reward trade (~1:3+). The height of the double-top points to a move to a measured move target (MMT) of ~12840 (check out a recent discussion on MMTs in this webinar on classic chart patterns).
Momentum/breakout traders with a hold time of several days or longer can opt to enter on a confirmed break, while pullback traders may want to wait for the first bounce, or even more optimally, a retest of broken support (old support = new resistance). Or, some combination of the two via a 50/50 split with position size.
Stops should be placed sufficiently above the 13190/40 region, with placement beyond the developing trend-line off the 10/25 peak as a logical spot. If EUR/JPY is to trade lower following a break it shouldn’t put up a fight too much beyond what will become a staunch area of resistance in the event of a breakdown.
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Traders with shorter-term time horizons (a few days or less) can use the broader bias to look for trades on the 4-hr time-frame or shorter. By using the daily break, traders operating on the short-term time-frames will be trading along the bigger picture path of least resistance.
It’s worth noting, that with such a nicely defined level of support close at hand, if a trader has a bullish outlook, 13190/40 is a good ‘line-in-the-sand’ to look to. After all, support is support until it isn’t…
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Trigger: Daily close below 13140
Stop: Sufficiently above 13140/90 zone, trend-line off October high
Targets: 12937, 12840/12756 (It's prudent to put limits prior to targets, ~20 pips.)
---Written by Paul Robinson, Market Analyst
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.