EUR/JPY Weekly Outlook

By IBTimes Staff Reporter | August 07 2010 5:27 AM

EUR/JPY continued to stay in consolidation below 114.72 last week without making any progress. Initial bias remains neutral and more sideway trading could be seen. But still, even in case of another fall, downside is expected to be contained above 110.00 support and bring another rise. Break of 114.72 will target 100% projection of 107.30 to 113.36 at 110.00 at 116.06 next and possibly further to 38.2% retracement of 139.21 to 107.30 at 119.48. However, break of 110.00 will indicate that rebound from 107.30 is finished and will turn focus back to this low.

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In the bigger picture, rebound from 107.30 is treated as a correction in the larger decline only. Whole fall from 139.21 is viewed as resumption of long term down trend from 2007 high of 169.96 and is still in progress. Break of 110.00 will indicate that such down trend is resuming for 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 119.64 support turned resistance, which is close to 38.2% retracement of 139.21 to 107.30 at 119.48, is needed to be the first signal of medium term reversal. 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.