Forex Technical Update

Previous: EUR/JPY – Double Top and the Regression Scenario (9/19)

EUR/JPY1H Chart 9/23/2012 8:10PM EDT

EUR/JPY 9/23/2012 1H chart

The 1H EUR/JPY chart shows a regression back to the mean price action in this time-frame., the first scenario discussed in the previous update that followed a “double top” formation. 101.65 was seen as a pivot and coincident with where the 200-hour SMA would be when price retraces to about this level. As we can see in the 1H chart, the market basically consolidated between 102.00 and 101.00, around the 200-hour SMA.

Towards the end of last week’s trading, and the start of this week, the EUR/JPY is forming a few more bearish candles, breaking out of the 9/20-9/21 consolidation. Momentum is for the most part kept bearish in the 1H chart, if not for the strong candle that pushed the RSI above 60. Still the ability to come back and now to fall back below 40 would reflect maintenance of bearish momentum, and suggest further bearish retracement.

The second scenario noted in the previous update was a regression to mean price action in the 4H time-frame. The noted mean price action in the 4H chart, near the 200-4H-SMA and a previous pivot was 99.15 (the 200SMA was 99.00 at the time of the previous update).

However, before we expect the EUR/JPY to fall to that moving average or 99-99.13 area, there is a rising trendline, and also the 100.00 psychological handle to monitor. Regression to the mean is a concept for range-bound markets. Here we have a bullish market, so It will probably be prudent to be conservative on the retracement expectation.

In fact we should probably monitor the 100.66 pivot and the 100.00 psychological handle as levels to monitor for support, meaning limiting our bearish expectations at the moment to these levels.

It should also be noted while looking at the 4H chart that the RSI is at 40, and has bounced off 40, or slightly break it but rebound from right under, since the rally started from 94.10 in late July. Will the market remain bullish in this time-frame and end the retracement cycle early this week? This scenario would surely warn against any aggressive bearish outlook until further downside confirmation.

EUR/JPY 4H Chart 9/23/2012 8:15PM EDT

EUR/JPY 9/23/2012 4H chart

Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

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