Like other yen pairs, EURJPY has been consolidating since the January 3rd flash crash.
You may recall the short setup that materialized in mid-December. The 200-pip target was reached in a hurry and was part of a substantial 900-pip drop.
Given the price action since January 4th, it seems EURJPY may be gearing up for the next leg lower.
Just yesterday the pair hit a key resistance level at 125.50. The region served as support between May and December of last year.
On the flip side, we have diagonal support that extends from the January 4th low.
It isn’t as defined as 125.50 resistance. However, lows like the one that formed on the 4th tend to act as key areas going forward.
If we use that low to connect a trend line with the January 25th low, we get a wedge pattern that could become a factor shortly.
For this to work, we first need a daily close below support near 124.20/30.
Remember that I use New York close charts that close at 5 pm EST.
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Keep in mind that the 124.20/30 support area could change depending on how long it takes EURJPY to test the area.
But as long as the pair remains below 125.50 on a daily closing basis, EURJPY is vulnerable.
Key support below 124.20/30 comes in at 122.70 followed by 119.30.
Alternatively, a close above 125.50 would expose 127.60.
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