Is euroyen ready for breakout?

With the widely-followed EURUSD(CME:ECU4) hitting a new 11-month low under 1.3250 yesterday, it’s not surprising that sentiment is particularly dour toward the single currency. Taken from a broader perspective, however, the euro has actually been outperforming some of its major rivals, including in the EURGBP and the subject of today’s piece, the EURJPY.

Earlier this month, EURJPY(FOREX:EURJPY) peeked down to a fresh year-to-date low under 136.25. As we always note though, it’s critical to watch for a daily close before confirming a breakdown, and as fate would have it, rates recovered back to the upper-1.3600s, creating a large Piercing Candle* on the daily chart. This candlestick pattern, in concert with the bullish divergences in both the RSI and MACD indicators, signaled that the pair may have formed a medium-term bottom.

Rates have gradually rallied over the last two weeks, and the unit is now on the verge of a major breakout today. Bulls have pushed EURJPY above converging previous / 50-day MA resistance at 137.75; a close above this area could open the door for a bullish continuation toward the 38.2% Fibonacci retracement and 100-day MA at 138.80.

As with the bottom earlier this month, traders would like to see confirmation from the secondary indicators (in this case, by the RSI breaking above 60 resistance and the MACD crossing above the “0” level) to confirm the bullish shift. Meanwhile, a reversal and failed upside breakout would have bearish implications for a drop back down toward 1.3625 support.

As a final note, ECB President Mario Draghi is making a highly-anticipated speech at the Jackson Hole symposium, so traders may want to wait to get his latest assessment of the Eurozone economy and the ECB’s appetite for enacting an outright QE program before committing either way on EURJPY.

*A Piercing Candle is formed when a candle trades below the previous candle's low, but buyers step in and push rates up to close in the upper half of the previous candle's range. It suggests a potential bullish trend reversal.

 

 

Source: FOREX.com

About the Author
Matt Weller

Senior Technical Analyst for FOREX.com. Matt has actively traded various financial instruments including stocks, options, and forex since 2005. Each day, Matt creates research reports focusing on technical analysis of the forex, equity, and commodity markets. In his research, he utilizes candlestick patterns, classic technical indicators, and Fibonacci analysis to predict market moves. Matt is a Chartered Market Technician (CMT) and a member of the Market Technicians Association. You can reach Matt directly via e-mail (mweller@gaincapital.com) or on twitter (@MWellerFX).

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