EUR/JPY Technical Analysis: Three Days of Selling Brings on Support

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Talking Points:

• EUR/JPY Technical Strategy: Flat, Pending Short Setup Canceled
• EUR/JPY surges above resistance as risk aversion continues to increase.
• Five consecutive daily gains behoove patience for the short setup until more clear resistance comes in.

To end last week, we noted the increased volatility taking place in EUR/JPY in the wake of FOMC. After higher-highs and higher-lows had begun to show up in EUR/JPY leading into last week’s FOMC announcement, the makings of a new up-trend were showing as near-term resistance levels were giving way to rising prices.

But since FOMC, the Euro-Yen has faced considerable selling pressure: Risk aversion has continued to tick higher as we’ve seen the pair move lower by over 280 pips since the ‘hawkish-hold’ of last week. This near-term selling pressure met support in the 133.50 zone, which is the 50% Fibonacci retracement of the most recent major move in the pair (taking the April 2015 low to the June 2015 high). Prices ran down to support in the early portion of the Asian session, and have since traded higher by over 100 pips. This retracement in the short-term down-trend could open the door resistance at the 135 level, which has been significant in EUR/JPY of recent as this is both a major psychological level as well as being very near the 38.2% Fibonacci retracement of the ‘secondary move,’ (taking the 2014 high to the 2015 low). We’ve also seen considerable price action support at this interval, leading to the possibility of old support becoming new resistance.

The long side of the pair could be more difficult to work with considering the veracity of the move lower. Three days of losses after FOMC have erased all of the September gain in EUR/JPY and has put the pair in a significantly more-bearish posture. Recent support in the 133.50 zone could offer a level to anchor stops below in a reversal play. This would be a wide stop of over 100 pips, so targets would need to be set accordingly above 135.50 to look for a minimum 1-to-1 risk-to-reward ratio.