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EUR/JPY Technical Analysis: Threatening a Bullish Break of Bear Pennant

EUR/JPY Technical Analysis: Threatening a Bullish Break of Bear Pennant

2017-04-26 12:43:00
James Stanley, Currency Strategist
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Talking Points:

In our last article, we looked at an aggressive bullish reversal in EUR/JPY as price action ran into a key zone of potential resistance around ¥117.50. Going along with this strong move-higher was price action breaking above a down-ward sloping trend-line that had held resistance in EUR/JPY for over a month.

The primary initiator of the move were French elections over the weekend; as this weekend’s election results ushered-in a return of risk tolerance. And with this return of risk tolerance came another bump-higher in equities, a bump-lower in Gold prices, and another leg of weakness for the Japanese Yen.

The bullish move in EUR/JPY extended on Tuesday to cross-above the pivotal ¥120.00 level; but another level/zone of resistance is showing that may bring pause to the continuation of the bullish move. The level at ¥121.95 is the 50% Fibonacci retracement of the ‘Abe-nomics’ move in EUR/JPY, taking the low from 2012 up to the high in 2014. But very near this level is another key element of resistance, as a down-ward sloping trend-line that’s held the highs in EUR/JPY since mid-December of last year is projected just-above this area.

EUR/JPY Technical Analysis: Threatening a Bullish Break of Bear Pennant

Chart prepared by James Stanley

With Central Bank meetings from both Europe and Japan scheduled to take place in the next 24 hours, EUR/JPY can remain volatile in the near-term. This would be an idea time frame for a ‘new phase’ of price action to take place, whether that be breaking above the longer-term ‘pennant formation’ in the pair; or resistance at current levels and continuing to dig deeper within the congestion pattern showing on longer-term charts.

EUR/JPY Technical Analysis: Threatening a Bullish Break of Bear Pennant

Chart prepared by James Stanley

For those that do want to play for the top-side break of the bear pennant formation, there are a couple of different ways of doing so. Traders can look for a top-side break of the pennant (which may happen around tomorrow’s Central Bank meetings) to show further continuation potential; after which this current zone of resistance around ¥121.95 could be re-assigned as support. This would allow for the resolution of a key resistance zone to further confirm the potential for a sustained bullish-move.

Alternatively, traders can watch for inside price action to develop ‘higher-low’ support around that ¥120.00-handle. This is a confluent zone for EUR/JPY as just below the psychological level of 120 we have the 61.8% retracement of the ‘big picture’ move in EUR/JPY, taking the low from the year 2000 up to the high set in 2008.

EUR/JPY Technical Analysis: Threatening a Bullish Break of Bear Pennant

Chart prepared by James Stanley

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

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