EURJPY bulls have made their presence known since the pair bounced from the 127.00 support area last month. So far, the market has clawed back 350 of the 650 pips lost between late September and October.
Could that be a clue?
Note that the 350 pip figure above is close to the 50% retracement of the recent 650 pip decline. As you may know, corrections love to retrace about 50% of impulsive moves.
The question is, was the late September to October selloff impulsive? In other words, do EURJPY bears have intentions of taking the market lower, or is this just more back and forth price action within an 800-pip range?
At the moment, I have to side with the idea that the price action since late September is part of a range and nothing more. The aggressiveness of this latest bounce doesn’t give me much reason to believe the pair is about to roll over again.
But there are two sides to every story.
While buyers are no doubt in control at the moment, there is a pattern that could help us determine a likely turning point.
As you know, I’m a big fan of the daily time frame. It’s why I named the site “Daily” Price Action. But every once in a while, the 4-hour chart can really shine. This may be one of those moments.
Since bouncing from 127.00 in October, EURJPY has carved what appears to be a 4-hour ascending channel. So far we have two touches on both support and resistance, so everything looks good there.
The question is, will this channel serve as a continuation pattern?
That’s what we need to find out. And the only way to do that is to wait and see. Attempting to short EURJPY up here is risky in my opinion given how bullish the pair has looked since October 26th.
I will say this though. For a pattern to trigger a continuation of a recent move, the market shouldn’t retrace much more than 50% of the initial move. If it does, chances are it isn’t a continuation pattern.
In the case of EURJPY, that means the 130.00 area needs to hold as resistance on a daily closing basis. A close above this area would signal to me that buyers intend to retest 131.00 and perhaps even tag the September high at 133.00.
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In summary, I’d like to see the 130.00 area hold up as new resistance. If it does and we get a close below the channel support shown below, it could set up a short opportunity for a move back to the 127.00 handle.