Yesterday we discussed the idea that GBPJPY was beginning to lose steam after rallying 700 pips last week. The start of this week has painted a much different picture with the pair now trading back below the 185.35 handle.
EURJPY may not be far behind. After rallying 470 pips last week the pair found selling pressure at a familiar level. The 137.00 area has acted as support and resistance on several occasions since May and didn’t disappoint during yesterday’s session as the level once again acted as resistance.
Speaking of yesterday’s session, the pair formed a bearish engulfing bar on the daily chart, giving credence to the idea that the pair might be in the process of carving out a lower high.
Similar to how GBPJPY was situated above 185.35 at this time yesterday, EURJPY faces a make-or-break level at 135.00. This level has acted as support and resistance since 2013 and more recently provided support for the pair in August and early September.
We can see that today’s price action has confirmed that this level is still of interest moving forward. We can therefore begin watching for a daily close below this level to indicate that further losses are likely.
But there is one thing that is unsettling about the idea of a short position from current levels…
You may remember the break below the 133.10 handle on September 4th. This was a significant break for the pair and one that, in any other market condition, would have likely triggered the next leg down.
However instead of respecting the level as new resistance, the pair caught a massive bid and began what would eventually turn into the pair’s largest one-week rally since May.
Why is this unsettling, you ask?
It isn’t because the false break signals that further strength from current levels is likely. A close back below 135.00 would quickly put an end to that idea.
It’s unsettling because the best trades, especially those that are pyramided, are done so on charts with clean, obvious levels. In other words, the September 4th false break makes it difficult for us to gauge where the true level of interest lies.
This doesn’t mean that a break of 135.00 cannot or should not be traded. What it does mean, at least for me, is that GBPJPY may be the better option between the two simply because its key support levels are still very much intact.
Summary: Watch for a selling opportunity on a daily close below 135.00. Key support comes in at 133.10 with a move past the September low targeting 131.50. Alternatively, a daily close above 137.00 would negate the bearish bias and target trend line resistance from the June 9th high.