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In mid-January I began to suspect that the EURJPY had topped out. In fact, I even wrote a commentary stating that I believed buyers were tiring in the 136.60 area.
We wouldn’t find out until the first few days of February that the actual top was just above the 136.60 handle. Still, wedge resistance did its job and capped the pair at the February 2 high of 137.50.
Then came the February 8 break below wedge support followed by the February 9 retest of the 134.00 area as new resistance. Since that time our focus has been on the next key support level at 131.40.
Buyers stepped in to support prices in this area during Thursday’s session after the pair carved a low of 131.28.
However, there was no bullish pin bar or even a significant bounce from 131.40 to show for their efforts. Instead, we saw a slight 25 pip surge a few hours before the session close, a clear indication that sellers remain in control.
Fast forward to today, and we have a 4-hour close below the 131.40 handle. Whether or not this justifies a selling opportunity is up to you.
I won’t add to my existing short position (first entry just above 136.60, second at 134.00) until we get a daily close below 131.40. That would give me greater confidence to scale in again next week and also prevents me from adding to the position ahead of the weekend.
If the EURJPY closes today below 131.40, traders can watch for a retest of the level as new resistance next week. The next key support doesn’t come in until 128.30, giving shorts just over 300 pips to work with.
Alternatively, a daily close (New York 5 pm EST) below 131.40 followed by a close back above it would negate the bearish outlook.
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