EUR/JPY: Bearish setups beginning to appeal

Alex Stal
  • May 9th, 07:41
  • Last Updated: October 21st, 13:39

With Market Talk of EUR/JPY bulls switching to bears over the pasts few weeks and technical levels being broken, bearish setups beginning to appeal.

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There is the potential for a longer-term bullish triangle to form, but within this triangle is a Triple Top / H&S pattern, with yesterdays invalidating the lower triangle line. Of course chart patterns are never perfect and we could indeed return back within the pattern. However if we are to break below 140 then this would confirm the H&S to target the 135-136 support zone.

Also take note of the broken trendline from Oct ’12 which capped as resistance following the downside break. I find this to be a characteristic of broken trendline (particularly on EUR) so we may find a scenario where price creeps up the outside of the recently broken trendline.
However if you look closely on your daily charts you’ll notice it is a bearish engulfing candle with a range more than twice that of the candles of the preceding 2 weeks. That usually tells you something, and when you consider that the EUR futures chart closed on particularly heavy bearish volume it adds extra weight to the bearish close of yesterday and for a resumption of losses.

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Looking at the intraday chart We can see a good resistance zone around 140.90 – 140 which may provide fresh short-signals, should we retrace to these levels. As long as we remain below this zone then I fance another leg down to 140-140.20, where I would expect solid suport (initially).
A break above 141 also has the broken trendline to act as resistance, but any price action back within this trendline will invalide this analysis and require another trip to the drawing board.

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