EUR/JPY: Still Intact After Hitting Significant Low During Brexit News
Dwayne Buzzell | Sep 01, 2016 04:37AM ET
The long-term downtrend in the EUR/JPY pair is still intact after hitting a significant low in 24th June 2016 during the Brexit news. So far 109.50 is the temporary bottom of this pair followed but the Brexit news and currently the pair is struggling hard to recover its losses. The current FED decision during the FOMC meeting minutes has created a mass confusion into the mind of investors since the FED haven’t cleared the smoke of the interest rate decision during the meeting minute. Some investors might think that the dollar will weaken over the course of time but due to the underlying fact of Japanese monetary policy, there remains strong chance of upward move of the EUR/JPY pairs during the upcoming days.
The pair has started to fall after hitting the high of 134.50 on 4th December 2015.Professionally trained traders believe that there is strong chance of correction of this pair towards the 118.56 level. However entering into the trade against the current prevailing trend will be a quite immature act in the absence of definite bullish reversal in this pair. Before hitting the level there are some major obstacles which will limit the upward move of this pair and give the control to sellers again. However, if the pair manages to breach the 114.788 level, than there is strong chance of upward rally towards the critical resistance level. In the shorter time frame, the pair started to form nice higher high associated with lower lows which are the pretty good indication of the bullish momentum of this pair.
Let us see how the technical parameters in the daily chart of EUR/JPY pairs.
Figure: Technical parameters in the EURJPY pairs
The long-term daily downtrend trend line is still intact on the pair but there is strong chance that the pair will retrace back to the trend line resistance level near the 117.00 level. Such major retracement in the EURJPY pair can't be traded with pending orders rather price action confirmation signal should be used before selling the pair into a critical resistance level.
The bullish scenario for this pair is pretty much uncertain at this stage until the daily down trendline of this pair has been taken out. A clear bullish break of the level 118.50 will turn the initial bias of this pair to bullish scenario and market will expect some fresh buying from that region. A daily closing above that level will shot the pair towards the 121.80 level. Some traders believe that the 121.80 mark is saturation level for this pair and the market might exhibit ranging move from that level making 118.50 levels as the bounce floor.
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Current price action scenario is not favoring the traders to trade this pair but there is good profit taking the chance if anyone buys this pair with the tighter stop loss in the lower time frame. The main idea behind buying this pair is to go in favor of the potential correction of this pair. If the 109.50 acts as a temporary bottom of this pair then we might see a nice upward rally or more than 500+ pips in this pair. But going against the trend is not that easy. The daily RSI in the EUR/JPY pair is in the oversold region which is the good indication of potential reversal for this pair. Traders should use candlestick confirmation pattern before going long in this pair. The current global economic crisis has made the Japanese Yen as a low yielding currency and traders are taking the benefit out of it very strongly. But BOJ is very cautious about their economy and can drastically improve their currency strength by making a hawkish statement and hiking the current interest rate.
The long term scenario in the EUR/JPY pair suggests that there will be consolidated movement on this pair until it clears the 123.00 mark for bullish landmark and for bearish landmark the critical support zone is 100.00 levels a strong major physiological level. Most long term investors believe that the pair will oscillate within this range and traders are advised to take the benefit of the key resistance level going in favor of the long-term prevailing downtrend. Most importantly the traders might see a bearish crossover in the weekly chart for this pair. If the 100-day moving average crosses below the 200 days daily moving average in the weekly chart than we might see a drop of more than 1000+ pips in this pair which will target the 103.500 level first. The might find some support near the 103.50 mark but eventually, the bounce will fade out from that region with some new fresh selling powers in this pair. The fresh selling power will bring the pair down to the 100.00 mark which has not been tested for over a year in this pair.
Summary: The current situation of this pair suggest that there might be a strong retracement in this pair towards the 115.70 level but taking a long trade without any confirmation signal will be an immature act. In the absence of definite bullish reversal signal in the EUR/JPY pairs, traders are advised to keep aside until bullish price action confirmation signal is seen in the daily chart near the 112.00 – 111.00 level. It's highly advised to use at least 1:4 risk reward ratio while entering long into this pair. Those who are sellers for this pair should wait patiently until the market hit the trend line resistance level near the 118.50 mark or break the most recent low of 109.50.To be precise there seller has enough time to get into this pair since the risk reward ratio is not favoring at the current price.
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