Forex Technical Update
The EUR/JPY has been rallying sharply since the start of 2012 from the 97.00 handle. The latest swing from 105.63 to 111.42 broke above a declining trendline going back to 2008 and has been consolidating since. The consolidation retraced 50% of this latest swing and formed a triangle seen in the 4H chart. As far as wave count, this triangle has completed A-B-C-D-E (5 waves). According to Elliott Wave Principles, this can be considered a completed consolidation pattern if the market is to continue the previous trend.
The 4H chart also shows a central pivot at about 109.80. This has provided very short-term resistance and support, but when broken, the market went to the consolidation support or resistance. Therefore if the market can rally above 110.00 in the 4/3 Asian-European session, the market opens up a rally toward 111.00, and if the consolidation structure is indeed complete, further upside risk can be seen.
The 1H chart shows that at the triangle support, we have a short-term bullish divergence with the RSI. This suggests that the swing from point D to E may be losing momentum. However the central pivot area of the triangle will be a challenge for the bullish outlook. We can see the hourly 200, 100, and 55 Simple moving averages around the 109.80 level. Therefore a rally above 110.00 is needed to open up a bullish outlook. Also, the RSI should push above 60.
On the other side of the coin, if the market fails to push above 110.00, and the RSI is kept below 60, and pushes back below 40, the bullish outlook should be shelved, and the bearish breakout can be anticipated, opening up the 106.00 handle and the 104.63 support pivot.
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Fan Yang CMT is the Chief Technical Strategist for IBTRADE, trader, educator and a main contributor for FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.