EUR/JPY Technical Analysis: Descending Wedge on Daily

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Talking Points:

• EUR/JPY Technical Strategy: Previous short hit one target, remainder stopped.
• EUR/JPY is showing congestion with a bearish bias given the continued price action near long-term support.
• If you’re looking for trading ideas, check out our Trading Guides. And if you want something more short-term in nature, check out our SSI indicator.

In our last article, we looked at a short position in EUR/JPY off of a key resistance value of 123.08, which is the 38.2% Fibonacci retracement of the secondary move in the pair, taking the 2008 high to the 2012 low. And while the pair descended enough to trigger the first target, a reversal to open this week moved the remainder of the position to the stop. But Yen weakness has been a fleeting theme, as another move by Japanese policy makers (combined with markets’ response) has given the appearance that risk-aversion may be back on the horizon before too long.

The current price action formation on the daily chart of EUR/JPY is a descending wedge, and this can be found by connecting the swing high on March 31st with the swing high to April 27th to define resistance; while that confluent support zone between 121.50-122.50 continues to stem the declines. This support has held for the better part of three-and-a-half months; and at this point traders would likely want to see a concerted break before looking for down-trend continuation setups.

To look for the next directional move, traders can use recent price action to devise strategy. The recent swing-high reflected off of the 38.2% retracement of the most recent major move at 124.04; and should price action break above this level traders can then begin assigning top-side approaches to EUR/JPY. While support at 121.50 (121.47 to be exact to the pip) has been the bottom-side of this recent support zone; and traders will likely want to see this begin to give way before assigning down-trending biases to the pair.

Chart prepared by James Stanley

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

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