EUR/JPY Weekly Outlook

By IBTimes Staff Reporter | May 29 2010 8:30 AM

EUR/JPY edged lower to 108.82 last week but recovered since then. With a short term bottom in place, with 4 bullish convergence condition in 4 hours MACD and RSI, further recovery might be seen initially this week, towards 38.2% retracement of 127.88 to 108.82 at 116.10. Nevertheless, such recovery is treated as a correction in the larger down trend only. Hence, we'd expect strong resistance below 61.8% retracement at 120.60 to limit upside and finally bring fall resumption. On the downside, decisive break of 108.82 will target 61.8% projection of 169.96 to 112.10 from 139.21 at 103.45 next.

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In the bigger picture, fall from 139.21 is treated as resumption of long term down trend from 2007 high of 169.96 and should target 61.8% projection of 169.96 to 112.10 from 139.21 at 103.45 which is close to 100 psychological level. Though, we'd expect strong support between 2000 low of 88.96 and 100 psychological level to contain downside and bring reversal. On the upside, break of 127.88 resistance is needed to be the first signal of bottoming. Otherwise, outlook will remain bearish.

In the long term picture, up trend from 88.96 (00 low) has completed at 169.96 and made a long term top there. Based on the five wave structure of the rise from 88.96 to 169.96, we're favoring that fall from 169.96 is corrective in nature. It should develop into a three wave correction with first wave completed at 112.10, second wave completed at 139.21. The third falling leg is now in progress but would be contained above 88.96 key support level. We'll hold on this this view unless fall from 169.96 shows sign of acceleration.

EUR/JPY