EUR/JPY Signals Bullish Continuation with Key Breakouts

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EUR/JPY Signals Bullish Continuation with Key Breakouts

EUR/JPY was consolidating in what appears to be a triangle pattern last week as we can see in the 1H chart below.

EUR/JPY 1H Chart 12/22

eurjpy 1h chart 12/22

(click to enlarge)

Triangle: We can see that a triangle formed after a bearish attempt because before the triangle was formed, EUR/JPY was trading below the 200-, 100-, and 50-hour simple moving averages (SMAs) and the 1H RSI tagged 30 and was holding below 60, showing maintenance of bearish momentum.

Bullish Breakout: As we begin this week, price was able to climb back above the SMAs, and break above the triangle pattern. The 1H RSI also pushed above 70, showing bullish momentum in the near-term. Perhaps, the US session will see this as a sign of being overbought in the near-term, but if there is a pullback, we should find support above 146.25.

Failure: A break below 146.00 however would signal a false bullish breakout, which can also be interpreted as a signal for a bearish outlook, at least to test the 145.00 low.

Bullish Outlook: Now, returning to the bullish breakout, we can see that early US session price action is confirming the breakout as it bounced off the 200-hour SMA and the 146.75 pivot.  In the short-term, it is signaling a push towards a common resistance around around 148.00.

The 4H chart shows that the current rally is also breaking above a falling channel resistance line coming down from the high on the year at 149.78. The 4H RSI is also breaking above 60, showing loss of the bearish momentum established in the last couple of weeks during the falling channel action.

EUR/JPY 4H Chart 12/22
eurjpy 4h chart 12/22
(click to enlarge)

Bullish Continuation: The bullish breakout is therefore not only a bullish correction in the 1H chart, but a bullish continuation in the 4H chart .Note that before December, price was trading above the SMAs, and the RSI was holding above 40 and tagging above 70.

So, if price extends above the common resistance at 148, there is risk towards the 149.70-149.80 area.

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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.