On January 23 I made a bold call. I wrote that the EURJPY had likely carved a multi-year top at 136.60. The idea was based on a simple Fibonacci study and the rising wedge pattern that began last August.
Fast forward to today and it appears I was off, but only by 90 pips. While I wouldn’t say the trend has turned bearish just yet, Thursday’s close did break wedge support at 134.00. It’s a significant development and one that signals lower prices are ahead.
The question now is whether or not the pair will retest 134.00 area as new resistance.
Of course, I have no way of knowing the answer. It could go either way. On the one hand, the EURJPY is getting a bit overextended on the daily time frame, so some consolidation at current levels wouldn’t surprise me.
However, if we are now in a risk-off environment as global risk assets would suggest, the concept of mean reversion may take a back seat for a while.
Regardless of whether the pair rotates higher to retest 134.00 first or immediately plummets to 131.40, yesterday’s breakdown is significant. At a minimum, I believe it could result in a 500 pip decline to the August 2017 lows near 128.30. That’s the inception point of this rising wedge.
But before we see a 128.30 print, sellers need to get through the 131.40 support level. The area served as resistance throughout August of last year and later flipped to support between October and November.
It’s going to take a daily close (New York 5 pm EST) back above 134.40 to negate my bearish outlook for the EURJPY. As long as it holds as resistance on a daily closing basis, we will likely see much lower prices in the days and weeks ahead.