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Talking Points:
- EUR/JPY Technical Strategy: Flat
- EUR/JPY continues to trade within the symmetrical wedge formation that’s defined price action since May of 2015.
- Continued choppiness whilst price action remains confined in this wedge leaves EUR/JPY direction-less, for now; but should the wedge break, a big move will likely follow.
In our last piece, we discussed the continued confinement of EUR/JPY to the symmetrical wedge that’s been established by connecting the April-September 2015 lows for support, and the June high to the August high for resistance. Since the August highs and September lows have been set, thereby creating this price action formation, the symmetrical wedge has yet to break; although that almost came to fruition on Friday as a horrific NFP report sparked a quick run of risk aversion.
This wave of risk-aversion sent EUR/JPY spiraling lower as panic and fear began to set in for the global economy. But as normalcy became restored (normalcy for a ZIRP-fueled environment) and stock prices began moving higher, so did EUR/JPY; establishing support, yet again, off of the 133.50 zone that had provided the market with a higher-low in the previous week. This is the 50% retracement of the most recent major move in the pair, taken from that same April low to June high.
Until this wedge breaks, near-term direction in EUR/JPY remains congested. Traders can look to utilize mean-reversion logic by selling resistance within the wedge, and closing shorts and buying support after prices move lower. For this type of strategy, resistance could be sought out at the 137-137.50 area, while support could be seen from 133.50-134.00.
Once the wedge breaks, EUR/JPY becomes considerably more attractive, as this pair has a tendency to trend and after five-plus months of congestion, the accompanying move will likely be outsized. On the down-side, this would be a break below 133.15-133.40 (the lows of the past two weeks), and on the up-side, this would be looking for a price break above 137.50 (projection of resistance trend-line to tomorrow’s Daily bar).
Once either of these levels are eclipsed, trend-following logic could again be utlilized; but until then, be careful not to get caught in the chop.
--- Written by James Stanley, Analyst for DailyFX.com
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