the EUR/JPY has had a very bullish year, gaining over 1000 pips so far.
But how far can this trend go? Is it time for a reversal or can the trend continue?
This analysis will take a closer look as to what we can expect of this pair over the coming weeks.
The Bigger Picture is Mixed
Let’s start out by having a look at the monthly chart (below). The outlook is quite undecided. Price is right in the middle of a range that is shaping up into a triangle (red and green trend lines) and the moving averages are intertwined. Therefore the only guidelines we can take from this chart is the support and resistance lines of the triangle, which will be important decision zones when price reaches either of them.
Price is Attracted to the Decision Zone
When we zoom into the weekly chart, we can see that the bullish trend of 2017 is traveling from the triangle support (green) towards the triangle resistance (red). The price structure seems to form a fairly neat ABC, which is very common within triangle formations.
There is no significant resistance between the current price level and the red trend line, so there is a good chance that price will reach the decision zone between 138.00 and 140.00 (dark horizontal lines) over the coming weeks or months.
Daily Chart Reveals Signs of Weakening Trend
Although the EUR/JPY uptrend has been strong, there are now obvious signs of a slow down that are particularly visible on the daily chart (below).
The most obvious sign is the double divergence present between the momentum indicators and price levels. This strongly suggests that at least a return to the long-term moving average (144 EMA) is due. Price has also been in a very extended range over the last 12 weeks, which suggests that there is not a lot of ‘oomph’ left in the overall uptrend.
Are Bulls Taking Over Again?
Yet in spite of these signs of slow down, the EUR/JPY showed renewed bullish momentum over the last few days, which has pretty much catapulted price out of its range.
What does this mean?
It most likely means that the trip down to the 144 EMA is not going to happen just yet. The range we have witnessed over recent months is probably part of a corrective Wave 4, which suggests that the bullish breakout could have initiated the final Wave 5 upwards. The completion of a wave 5 would coincide well with a possibly bigger reversal at the decision zone (i.e triangle resistance line/ 138 – 140 round number/ -100% Fib target), which lies some 400 – 500 pips further north still.
This scenario correlates well with the price situation in which the EUR/USD find itself in (checkout Chris’ EUR/USD weekly analysis videos for more details).
For the time being the bulls appear to have taken control again and the way upwards looks quite obstacle-free, at least until 138.00. The bullish price movement probably won’t be as strong and clear as it has been throughout 2017, but there should still be some good buy opportunities on the horizon.
Watch out for the key decision zone around 138 – 140, which is the main candidate for a bigger reversal.
All the best along your trading journey…
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