EUR/JPY – Outside Bar Might Keep Bulls at Bay

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EUR/JPY - Outside Bar Might Keep Bulls at Bay

Falling Channel, Bottom Attempt: As you can see in the daily chart, EUR/JPY has been trading down in a falling channel since March this year. The pair was bullish in 2013, but shifted in Q1 of 2014, and has been bearish since Q2. In August, the trend continued, but traders found support at 135.73. EUR/JPY rallied and was able to climb back to the August high at 138, threatening to break the pattern of lower highs and lower lows.

EUR/JPY Daily Chart 8/22
eurjpy daily chart 8/22

(click to enlarge)

However, traders faded EUR/JPY at the 138 handle, and prevented the higher high. The 8/22 session is also forming an outside bar that might “engulf” the 8/21 day candle. An outside bar today would provide a couple other bearish signals as well.
1) Price is holding below the 50-day simple moving average (SMA).
2) The daily RSI is held below 60, a sign that the bearish momentum is maintained.

Bearish Outlook: At this point, if we are going to take this week’s rally as a sign that price is flattening, we should limit the bearish outlook to the 135.73 August low, and watch out for buyers around 136.50, especially when the daily RSI is back down to 40. IF the RSI swings between 60 and 40, EUR/JPY is likely in a sideways market.

Bullish Outlook: If price action disregards the outside bar and climb above 138.00, it would open up a rally toward the channel resistance, and the 100-day SMA around 139.00. This is also the previous resistance area in July. The bullish outlook won’t really open up until a break above these resistance factors, with the daily RSI pushing above 70. Otherwise, the market might still be bearish, in the medium-term, with downside risk back to the 135.73 low, and perhaps toward 135.50 which was a resistance pivot in Oct. 2013.

Long-term Perspective: It should be noted from the weekly chart that the RSI is still above 40. So, if price does eventually break above 139.00, the bullish continuation scenario would be in-line with the bullish momentum maintained in the weekly chart. Price would also likely return above the 50-week SMA if it breaks above 139.00, reclaiming a strong sign of a bullish trend. After all the trend in the weekly chart still looks prominently bullish, and the sideways-bearish market in 2014 looks more like a consolidation then a trend development.

EUR/JPY Weekly Chart
eurjpy weekly chart

(click to enlarge)

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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