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EUR/JPY Technical Analysis: Congestion Offers Double-Sided Breakout Potential

EUR/JPY Technical Analysis: Congestion Offers Double-Sided Breakout Potential

2015-10-08 19:12:00
James Stanley, Strategist
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Talking Points:

  • EUR/JPY Technical Strategy: Flat
  • EUR/JPY has continued to digest recent gains, and three days of consolidation could offer breakout potential on either side.
  • The longer-running symmetrical wedge could continue to define ‘big picture’ price action; but setups can exist within the wedge.

In our previous piece, we looked at how EUR/JPY had shot higher along with other risk-assets in the wake of the abysmal NFP print last Friday. We also remarked that the symmetrical wedge in EUR/JPY, that can be found by connecting a resistance trend-line from the June 2015 high to the August 2015 high, and the support trend-line that can be had by connecting the April and September 2015 lows, would likely spell continued choppiness in the pair until either trend-line yielded.

But since then, we’ve had additional congestion develop within this consolidation pattern, and this could offer shorter-term breakout-entries while we continue to trade within this wedge.

The levels of interest for this shorter-term breakout play would be the high and low set over the past four trading days; with support at 134.39 and resistance at 135.70. Traders could look to buy breaks over 135.70 and sell breaks below 134.39 with targets cast towards the converging trend-lines for each side. For tomorrow’s daily bar, that would be approximately 133.70 on the under-side of price action, and 137.60 on the top-side.

Outside of that, longer-term plays could be daunting as continued congestion could leave the pair without a clearly-defined trend. This current consolidation is taking place at a rather interesting juncture on the chart, at this 135 range is a major psychological level, as well as offering a 38.2% Fibonacci retracement at 135.13 (of the secondary move – taking the December 2014 high to the April 2015 low. There is also a 61.8% Fibonacci retracement level at 135.34 (of the most recent major move – using the 2015 high/low), so we’re currently trading at a critical price level of the longer-term price action in EUR/JPY, and subsequent breaks from current levels could highlight this zone as potential support or resistance.

EUR/JPY Technical Analysis: Congestion Offers Double-Sided Breakout Potential

--- Written by James Stanley, Analyst for DailyFX.com

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