Among the risk-sensitive yen pairs, EURJPY has been somewhat of a holdout. Yes, the pair has lost ground since the start of 2016, but its losses are mild compared to the thrashing that other currencies have endured against a stronger Japanese yen.
However, these “holdouts” can often produce favorable opportunities as they remain priced at a premium relative to other yen pairs. Combine that with the favorable technical pattern shown in the 4-hour chart below, and we may be on to something.
A wedge of this sort is often seen as a continuation pattern. As such, a close below support could trigger additional selling pressure that would see the pair revisit the 2015 low at 126.10. Conversely, a break above resistance would negate the bearish bias and expose higher prices.
In the case of the price structure below, I’m only interested in trading a move below wedge support given the bearish trend that has been in place since June of 2015.
While I do think that losses for EURJPY could eventually extend well beyond the 2015 low, this level is likely to attract a solid bid, at least as far as the immediate future is concerned.
Given the limited distance (140 pips) between wedge support and the 126.10 handle, anyone planning on trading a potential break needs to be precise with their entry in order to secure a favorable risk to reward ratio.
