EUR/JPY Technical Analysis: A Crucial Zone of Support Lurks Below
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- EUR/JPY Technical Strategy: Longer-term bullishness intact, near-term range-bound.
- After setting a new high shortly after last month’s rate hike from FOMC, EUR/JPY has been unable to break-above resistance while support has remained respected, leading to range-bound price action over the past ~month.
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In our last article, we looked at the ‘bullish range’ that had developed in EUR/JPY. We assigned a bias to the range given the veracity of the prior-move that had catapulted EUR/JPY higher by more than 13.6% from the lows in June and 9.1% from the lows of election night: The fact that higher-low support remained so well-respected was deductively bullish to the longer term price action in the pair.
Also relevant to bulls is the fact that another throw of QE from the European Central Bank in December merely elicited a ‘higher-low’ in EUR/JPY without as much as a prior support test. This is another deductively bullish indication that can increase the interest for longer-term bullish approaches. There is but one issue with that approach at the moment, and that’s the fact that resistance in the zone from 123.09-124.09 has proved extremely rigid and difficult to break.
After short-term support had yielded to selling pressure last week, buyers returned to drive prices higher but were unable to even reach that prior zone of resistance at 123.09, leading to a short-term ‘lower-high’ in the pair. So, what we have now is a shorter-term range that’s a bit messier and more difficult to work with; while the longer-term bullish posture remains intact.
For those that do want to trade the bearish side of EUR/JPY, they’d likely want to wait for a break of the confluent zone of support around the 120.00-figure. This zone has the 61.8% Fibonacci retracement of the ‘big picture’ move in EUR/JPY (the low in the year 2000 up to the 2008 high), the 38.2% retracement of the ‘post-Election move is at 120.15 and, of course, 120 itself is a major psychological level in the pair. Should price action break-down to this zone, this could open the door for bullish positions. But if we do get a concerted break of this area, with buyers unable to quell selling pressure – this can open the door to bearish continuation.
On the bullish side, traders can watch that same zone in the effort of getting long after some stops that are almost assuredly sitting below this recent range get cleared-out. But if we don’t get that support test in the zone around 120.00, traders can look to that same 123.09-124.09 area of resistance to signal bullish continuation prospects. A higher-high can denote bullish continuation, at which point the trader can look to buy a ‘higher-low’ in the pair.
Chart prepared by James Stanley
--- Written by James Stanley, Analyst for DailyFX.com
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