EURJPY remains in a sideways range
EURJPY challenged its Aug’06 high at 150.71 on Friday, but failed above it and subsequently sold off forming a bearish engulfing candle pattern
(a top reversal candle signal). The cross has been confined to a range between 147.56 on the downside and 150.71 on the upside since it hit an 8-year high in August this year.
EURJPY has been trending higher (monthly chart) since it bottomed out at 88.87 in 2000 following its sharp decline beginning in late 1998. The cross traded in a sideways range between May’03 (when it hit a high of 140.91) and late 2005 before breaking to the upside in early 2006 resuming its long term trend. It has since been trending higher in a weekly rising channel following that breakout and even resisted summer doldrums experienced by most currency pairs, pushing to an 8-year high (150.71) in August’06. As can be seen from the weekly chart, price remains within the mentioned rising channel preserving its longer term outlook and also improving the chances of a breakout to the upside resulting from its recent consolidation phase embarked upon for the past two months.
Figure 1: Daily Chart
Figure 2: Weekly Chart
Figure 3: Monthly Chart
Where will this cross likely head from here and how far can it go. Let us turn to our charts and find some clues. As can be seen on the daily chart, EURJPY has been trading in a range forming a rectangle price pattern, which is a series of sideways price fluctuations bounded on both the upside and downside by horizontal lines. It is technically a continuation pattern and the breakout is favoured to the upside. On such a break, our technical price objective comes in at 153.86 (coinciding with weekly channel resistance) established by measuring the width of the range and projecting it from the breakout point. Above this level, a significant resistance is seen at 162.41, its 1998 high.Conversely,on the downside, initial resistance is at 148.53/47,its Oct 17&18 lows followed by 147.72/56, its Sept’06 lows and rectangle pattern bottom. A successful penetration of these levels brings our rectangle pattern breakout target at 144.41 into focus, below weekly channel bottom at 145.09. Overall, as long as the weekly rising channel and the monthly rising trendline remain intact, the medium to longer term uptrend remains in good shape with higher price levels likely.
Happy Trading!
Mohammed Isah is an independent technical analyst,a professional trading instructor and mentor. He initially traded stocks and now primarily focuses on forex.He is an independent market analyst for Spencer Financial LLC.www.spencerfx.com. He produces the firm’s daily technical analysis research which is available on fxstreet.com,actionforex, forexfactory.com and www.tradingmarkets.com/fxtechnicalresearch.He can be contacted for enquiries at:misah@spencerfx.com
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