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EUR/JPY – Potential Topping Formation, Strong Support Acts as a Guide

EUR/JPY – Potential Topping Formation, Strong Support Acts as a Guide

Paul Robinson,

EUR/JPY Highlights:

  • EUR/JPY recently rose into long-term trend-line resistance
  • Price action on daily looks ‘toppy’, watch strong support at its feet

To end last month EUR/JPY tagged a trend-line running lower since December 2014, and since then it has shown signs of rolling over. Price action over the last month is taking on the shape of a head-and-shoulders (H&S) pattern with a strong neckline.

The neckline support originated as a top back in early June. Since then it became support twice in August and again last week. A closing daily candle below 12428 is seen as triggering the H&S formation. Based on the height of the pattern a measured move from the neckline of ~300 pips could unfold in fairly rapid fashion.

The key to this set-up is waiting for support to break, otherwise it is to be respected as support for as long as it holds. The would-be H&S pattern could turn into a congestion pattern that never officially provides a bearish trigger. In which case we would need to reassess and possibly turn to a bullish bias if further developments warrant such a stance.

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EUR/JPY Weekly Chart (2014 trend-line resistance)

EUR/JPY weekly chart

EUR/JPY Daily Chart (H&S w/strong neckline)

EUR/JPY daily chart

EUR/JPY Charts by TradingView

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.