EUR/JPY Technical Analysis: Stubborn Support Snaring Breakout Victims
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- EUR/JPY Technical Strategy: Down-trend showing tepidly bearish price action as we operate near a long-term support zone.
- After a quick breach of support after last week’s NFP report, price action has jostled higher, finding intra-day higher-low 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 descending wedge formation on the daily chart of EUR/JPY as price action’s declines continued to be thwarted by a long-running zone of support. This zone of support initially came into the picture in February as risk aversion was running high and traders were looking to load safe-haven bets into long-Yen positions. A quick bounce ensued shortly thereafter, with swing-high resistance coming in around the 127-psychological level later in the month; and since then price action has continued to make lower-highs while bouncing off of this well-tested zone of support from 121.50 to 122.50.
Friday’s NFP report had the potential to re-stoke risk aversion, and price action in the Yen indicated as such in the immediate aftermath of the print as we finally saw prices break below 121.50, printing a lower-low at 120.81 ahead of last week’s close. But since, we’ve seen bullish price action thus far on the new week, and with yet another false down-side breakout in EUR/JPY, traders should approach short-side continuation strategies with caution. On the chart below, we’re taking a look at the ‘bigger picture’ move in EUR/JPY, as defined by a down-ward sloping trend channel that’s caught a considerable amount of EUR/JPY price action over the past eight months.
Chart prepared by James Stanley
On the chart below, we’ve moved in to the 4-hour time frame to examine that most recent bout of bullish price action.
Chart prepared by James Stanley
Notice on the above chart the multiple tests of support around 121.50. This highlights numerous price action tests as sellers were thwarted by buying pressure, and this could mean a continuation of the top-side move, at least temporarily until we find a level at which sellers are willing and able to re-enter the equation.
For traders looking to re-load on the short-side of EUR/JPY, a deeper retracement to resistance at 123.08 (38.2% Fibonacci retracement of the secondary move, taking the 2008 high to the 2012 low) or in the zone from 124-124.25 (prior price action swing) could offer a more attractive setup as there would be additional distance to work with targets back down to the 121.50-122.50 zone of support. Until then, be careful of false breakouts on the down-side of price action.
--- Written by James Stanley, Analyst for DailyFX.com
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.