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Short-term trading idea FX JPY/EUR - bull speculation: rebound from the trend line

Gabriel Ojimadu

Trading opportunities for the currency pair: On Friday, the exchange rate on this currency pair rebounded from the trend line and a bullish engulfing pattern appeared on the daily candlestick. The Stochastic (5,3,3) has reversed upwards in the buy zone. Taking these signals into account, I’m expecting to see some growth on the cross to 124.00. In order for this to come off, buyers need to break the 120.32 level on the hourly timeframe to open the way towards 121.15 level. This scenario will not play out if the daily candlestick closes below 118.50.

Background:

The previous idea on the EUR/JPY pair was published on the 31st of October 2016. At the time, the price was around the 114.98 mark and a triangular formation had appeared on the weekly chart. It was proposed to work towards the exit rate out of this formation. As the price exited upwards, we got a flat "a-b-c" with targets for wave "c" in the range 118.60 - 120.63, and 125.25 in the case of an elongated wave. Had the triangle continued to fill out, we would have expected the price to exit downwards with targets of 104.70 and 99.80.

On the 10th of November, the rate broke through the upper boundary of the triangular formation. On the 23rd of November, it reached 118.60 and hit 124.09 on the 15th of December.

Current situation:

The Japanese currency began a phase of growth from 122.89 on the 13th of March. Buyers' efforts to push the price above the 123.00 mark came to nothing. Sellers held their own. Over the course of 6 trading days, the euro fell by 2.89% (356 pips) to 119.32 as traders closed their long positions.

In the last few days, the yen has strengthened on the back of traders' fears relating to US president Donald Trump's proposed economic measures. A vote in Congress on the new healthcare bill to dismantle Obamacare was pushed back from Thursday to Friday.

On Friday, the proposed legislation was dropped altogether from Congress' agenda due to a lack of support from Republicans. The US media labelled this a humiliating defeat for Donald Trump's administration, while the opposition hailed it as their own victory. By the end of the day, the yen had closed up.

Now, let's look at the current situation. The price has bounced off the trend line, which starts from the minimum 112.60 (21/10/16). During this rebound, a bullish engulfing formation appeared on the candlestick. The Stochastic (5,3,3) has reversed upwards in the buy zone. Taking these signals into account, I'm expecting to see some growth up to 124.00. The 122.55 level will act as an intermediate resistance.

In order for this scenario to play out, buyers need to break through the 120.32 mark on the hourly timeframe, which will open the way to 121.15. After this, they will aim for a target of 122.55. Further dynamics on the pair will depend on the struggle at 119. The yen is currently a safe haven for risk averters. On Monday, the cross opened down. At the moment, the pair is trading above the trend line and it's worth considering a rise in quotes. The potential for the euro's growth will disappear if the daily candlestick closes lower than 118.50 (under the current price model, a false breakthrough is possible).

Emmanuel Macron has strengthened his position since the televised presidential debates. He is now the favourite to win the second round of voting in the French presidential election.

Attention:

Forecasts which are made in the review constitute the personal view of the author. Commentaries made do not constitute trade recommendations or guidance for working on financial markets. Alpari bears no responsibility whatsoever for any possible losses (or other forms of damage), whether direct or indirect, which may occur in case of using material published in the review.

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