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

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Talking Points:

  • EUR/JPY Technical Strategy: Intermediate-term: congested; short-term: bullish.
  • EUR/JPY put in a strong bullish-continuation move after setting a 'higher-low' around ¥116.50.
  • If you're looking for trading ideas, check out our Trading Guides . If you're looking for shorter-term ideas, check out our IG Client Sentiment .

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.

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.

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.

Chart prepared by James Stanley

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

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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