EUR/JPY Breaking Above a Falling Channel

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EUR/JPY Breaking Above a Falling Channel

Backdrop:
The EUR/JPY has been bearish since the resistance pivot of 143.47 in the beginning of April. By August price has fallen down to 135.73, which is so far the 2014-low. Throughout the month, we saw sideways action capped by a failed bullish breakout, and then a bearish attempt that failed to break below 135.73.

EUR/JPY Daily Chart 9/12
eurjpy daily chart 9/12

(click to enlarge)

As we get into the 9/12 session, EUR/JPY is rallying above the recent consolidation area and threatening to break above the falling channel resistance. Meanwhile, price is climbing above both the 100-, and 50-day simple moving averages. Finally, the daily RSI is around 60. If the market is to be bearish, we should see sellers now. Otherwise if the daily RSI clears 60, we can say that the bearish momentum is lost.

Essentially, EUR/JPY is signaling a bullish outlook with a break above the falling channel. However, this bullish outlook will be challenged around 140, where we see a support/resistance pivot area, and the 200-day SMA.

We should anticipate a bearish attempt from this 140 area. If the bearish attempt respects the August consolidation range as support, then the bullish outlook should extend, with upside toward the 142 handle and the  highs around the 143.50 area, and finally the 2014-high around 145.70.

The 4H chart shows a market that is already overbought. If we do see a pullback before price even reaches the 140.00 handle, we should monitor the 137.25 area. A bullish market should respect this area that is surrounded by a cluster of the 200-, 100-, and 50-period SMAs in the 4H chart. A break below 137.00 would put EUR/JPY back into neutral-bearish mode. A hold above 137.25 would confirm the bullish outlook at least toward 140. We should also expect the 4H RSI to hold above 40 after a pullback if the market is indeed shifting from a neutral mode in August to a bullish mode for the rest of September.

EUR/JPY 4H chart
eurjpy 4h chart 9/12

(click to enlarge)

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.