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EUR/JPY Technical Analysis: Six Month Trend-Line Gives Way

EUR/JPY Technical Analysis: Six Month Trend-Line Gives Way

2016-10-04 18:05:00
James Stanley, Strategist
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Talking Points:

  • EUR/JPY has continued to find support off the 112.00 zone; with recent price action catching a bid-higher to break above a six-month downward-sloping trend-line in the pair.
  • While this raises the possibility of a ‘bigger picture’ reversal, this is still at the very early stage, and price action is finding resistance at a familiar Fibonacci level.
  • If you’re looking for trading ideas, check out our Trading Guides. They’re free and updated for Q4.

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In our last article, we looked at another test of the confluent support zone in EUR/JPY at the 112.00 handle; after having seen numerous tests in the months prior. We also noted the longer-term down-trend that’s seen a considerable move lower after 13 months of selling. So while this support was attractive, the veracity of the trend leading into that support was rather daunting.

But in an emailed statement this morning, the European Central Bank triggered alarms through global markets when they mentioned the possibility of ‘tapering’ QE. And this came out of the blue, as markets were seemingly expecting an extension of QE beyond the March 2017 end-date to be almost a foregone conclusion. While the ECB didn’t announce this extension at their most recent meeting, many market participants expected that such an announcement would follow at a later meeting ahead of March 2017. But this morning’s mention of the prospect of ‘tapering’ QE seemed to elicit a knee-jerk response that’s brought the Euro higher.

This has created a top-side break of a down-ward sloping trend-line in EUR/JPY that’s been active over the past six months, which includes a strong inflection around the Brexit referendum just before EUR/JPY dropped by more than 1,200 pips in a single day. The break of this trend-line has seen price action run-higher to test a Fibonacci level at 115.37, which is the 61.8% retracement of the ‘Abe move’ in the pair, taking the 2012 low up to the 2014 high.

Traders would likely want to approach top-side setups with caution here, as just above 115.37 are a series of prior price action swings that could pose resistance, and until those are taken out the intermediate-term trend will not be bullish. And this morning’s rumor is unsubstantiated and very ‘new’ information that traders would likely want to see some element of follow-thru before declaring that this prospect of ECB tapering of QE in the near-future could become an actual theme.

For traders that do want to look for the top-side move, awaiting a legitimate break of the 115.37 level in order to denote bullish continuation potential could add some confirmation to the potential bullish reversal. If this top-side break happens, the batch of price action swings could provide short-term resistance, and traders can look to buy support at the 115.37 level after the top-side move has a bit more confirmation behind it.

EUR/JPY Technical Analysis: Six Month Trend-Line Gives Way

Chart prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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