Since the November 2016 U.S. elections, the EURJPY has been on a tear. The pair has gained nearly 2,300 pips with most of that coming between mid-April 2017 and the January 5 session earlier this year.
Despite these impressive gains, the uptrend is starting to show some fatigue.
The first thing that stands out is the rising wedge that extends from the August 2017 low. While the lower boundary is more apparent than the upper level, the structure does hint at some exhaustion from buyers.
But the primary reason I’m interested in the EURJPY has to do with the accuracy of the horizontal levels.
I posted a similar chart just over a week ago. However, as nice as those levels appear, they don’t get us any closer to identifying a probable top.
Or do they?
For those who recall the lesson I posted on using Fibonacci to find potential tops and bottoms, this should be familiar.
Measuring from the 2017 low at 114.85 to the current 2018 high at 136.63, we can see that there is a lot of overlap with the levels in the first chart.
And it isn’t just one or two. Every Fibonacci level including the 23.6%, 38.2%, 50% (although not an actual Fib level) and 61.8% line up with key horizontal areas.
The significance of this is that 136.63 could very well be a near-term top for the EURJPY. It may even be more than that, but I’d need to see more to come to that conclusion.
Before you write this off as just theory, know that it has worked in the past. I used the same technique to identify a major top on the GBPJPY back in September 2015.
Sure enough, the high we discussed in that post is still holding today. In fact, just a few weeks after that commentary, the GBPJPY started to nosedive and eventually lost more than 6,000 pips over the next 12 months.
I did the same thing with the USDJPY and CADJPY in the member’s area back in 2015. Both went on to lose more than 1,000 pips in the months that followed.
I’m not saying that’s about to happen here. What I am saying is that this technique is more than just theory if applied correctly.
As long as the current 2018 high at 136.63 is intact, there’s a real chance that the EURJPY has topped out. If so, we could see the yen cross slide toward 134.30/40 and perhaps even 131.40 over the coming weeks.
So what’s the best way to enter if you share a similar bias?
While there may be an opportunity or two on the intraday charts, it seems waiting for a daily close (New York 5 pm EST) below 134.00/30 is the way to go. That would open up the former range floor at 131.40.
Alternatively, a move above 136.63 would cast doubt on the entire idea, and a 137.50 print would negate it entirely.
Keep in mind that this Thursday’s ECB rate decision and subsequent presser are sure to shake things up. Events kick off at 7:45 am EST followed by a Draghi press conference at 8:30 am EST.