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EUR/JPY and GBP/AUD Positioned for Lower Prices

EUR/JPY and GBP/AUD Positioned for Lower Prices

Paul Robinson, Strategist

EUR/JPY range breakout fails, implicates move to bottom of range or worse

At the end of December, EUR/JPY broke out of the range it had been confined to for three long months. We initially ran with the breakout. But in recent days, the failure to hold above the range suggests more selling is on the way, and if so, likely to the bottom of the range and possibly worse. From a trading standpoint, initiating a swing-trade at the moment doesn’t offer tremendous appeal in terms of risk/reward unless we see a push back up towards the upper-end of the range at 13450 and see a rejection.

For those trading on shorter-term time-frames (using 1-hr/4-hr charts), though, the path of least resistance is lower as long as the 13450 threshold isn’t reclaimed. Short-term set-ups on intra-day time-frames (i.e. bear flags, failed rallies w/bearish pin-bars, etc.) with good risk/reward (1:2 or better) could hold good juice until the low-end of the range around 13150. There are some trend-lines extending higher around the current level, but the failed breakout takes precedence in terms of importance.

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EUR/JPY: Daily

EUR/JPY daily price chart

Tactical approach:

  • Short-term shorts below 13450, targeting ~13150
  • Swing-trade on retest of top of range, stop above retest-day high upon a reversal
  • Daily close below bottom of range opens up path for much bigger move lower (will revisit if breakdown develops)

GBP/AUD descending wedge developing in direction of trend

GBP/AUD is in the process of carving out a descending wedge in the direction of the trend off the December high. The pattern triggers with a 4-hr closing bar below the bottom of the pattern; targeting a pair of swing-lows created back in November at 17040, then down just under 16900. Taking profits ahead of these levels is prudent in the event buyers step in ahead of support. Stops should at the least be placed sufficiently back inside the wedge. Some traders may choose to take a long on a top-side breakout, but the direction of trend and bearish implications of a descending wedge elevate risk of a rally failing.

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GBP/AUD: 4-hr

GBP/AUD 4-hr price chart

Tactical approach:

  • Trigger is a closing 4-hr bar below pattern
  • Stop placed inside pattern, ~17270 (red dotted line)
  • Profit objectives set 30 points above support at 17070 and 16925 (blue dotted lines)

---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.