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How to Trade a Reversal (if it happens) in EUR/JPY

How to Trade a Reversal (if it happens) in EUR/JPY

2013-02-06 20:28:00
Jamie Saettele, CMT, Sr. Technical Strategist
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Yesterday’s large outside day in EURJPY after such a sustained advance is evidence of emotional trade and possibly capitulation. Another risk sensitive currency pair worth a look is the NZDCAD.

New Zealand Dollar / Canadian Dollar

Weekly Bars

How_to_Trade_a_Turn_in_EURJPY__body_nzdcad.png, How to Trade a Reversal (if it happens) in EUR/JPY

Prepared by Jamie Saettele, CMT

FOREXAnalysis: Nearing the 2007 high (just like equities…), the NZDCAD advance from the 2012 low may compose an ending diagonal (classical technicians refer to the pattern as a wedge). Diagonals are terminal patterns that are often completely retraced quickly. A break below the diagonal support line is needed before we can proclaim the pattern complete (see daily chart below).

FOREX Trading Strategy: The tipoff that this may be an ending diagonal is the push through the diagonal resistance line and subsequent failure. In order to trade from the short side though, a drop below the diagonal support line is required. That line is at about 8236 next week. IF the diagonal is confirmed, then the objective is the origin of the pattern, at 7635.

New Zealand Dollar / Canadian Dollar

Daily Bars

How_to_Trade_a_Turn_in_EURJPY__body_nzdcad_1.png, How to Trade a Reversal (if it happens) in EUR/JPY

Prepared by Jamie Saettele, CMT

Euro / Japanese Yen

Daily Bars

How_to_Trade_a_Turn_in_EURJPY__body_eurjpy.png, How to Trade a Reversal (if it happens) in EUR/JPY

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

FOREXAnalysis: The advance from 10124 is exactly 2.618 x the July-October rally. Combined with resistance from the incredibly steep trendline and 2010 high at 12790, the current level is as good as any for a turn lower. Yesterday’s large outside day after such a sustained advance is evidence of emotional trade and possibly capitulation.

FOREX Trading Strategy: Signs of a top and trading from the short side are certainly 2 different things. An insane amount of patience and discipline is required in order to successfully trade turns. A drop below the line that extends off of the 1/29 and 2/5 lows (see next chart) is needed in order for me to look towards at least 12100. Until then, observe.

Euro / Japanese Yen

240 Minute Bars

How_to_Trade_a_Turn_in_EURJPY__body_eurjpy_1.png, How to Trade a Reversal (if it happens) in EUR/JPY

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

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

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

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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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