Published: November 12th, 2020
Back in April, EUR/JPY broke above the long-term downtrend and price went up, breaking above the 200 Exponential Moving Average. While it did seem like the beginning of an uptrend, the price has cleanly rejected the 38.2% Fibonacci retracement level at 126.69. After a month of consolidation, the price went down and broke below the 200 EMA. But this week, the 200 EMA is acting as the resistance, as so far is being rejected. Prior to that there was already the rejection of the EMA, and considering that this week it is the second bounce, the probability of the downside move remains very high.
Price could be heading south to re-test previously established support near 122.00 psychological level, which is confirmed by 88.6% Fibonacci retracement level as can be seen on the chart.
The ascending channel has been broken and the price tested 121.61 low. But then sharp correction up followed, sending the price up to 125.00 psychological resistance level. For the third consecutive time, sellers were able to defend this price area, and 61.8% Fibs got rejected. This shows bearish domination and validates potential downtrend.
The current correction could be very attractive for sellers and price could be starting to move down from this point onwards. The key support is located at 121.90 level, which is confirmed by 50% and 88.6% Fibonacci retracement levels. Besides, it corresponds to the 200 EMA, which should also provide some interest for buyers, if/when reached.
While the descending channel has been broken, the price failed to break above the 125.00 critical resistance level. Thus, the price will either continue to consolidate or start moving down. It can be seen, that the downtrend trendline is crossing with the 121.90 target level at the end of this months, and could be acting as the support. This means taht there is a 200 pip downside move potential, which might occur within the next two weeks.
On the lower timeframe, specifically on the 4-hour chart, it is very obvious that EUR/JPY is range trading. Price has been stuck between 122.00 support and 125.00 resistance area for the past few months. Currently, EUR/JPY is at the top of the range, and based on simple cycles, it can be expected to start moving down yet again. Obviously, this is only as long as the recently printed high will hold and there will be no 4-hour and/or daily closing prices above 125.00 psychological resistance.
On the hourly chart, EUR/JPY continues to trade within the descending channel. There was a break below 50 Simple as well as Exponential Moving Average. It can also be seen taht 23.6% Fibs at 124.60 and 76.8% Fibs at 124.46 were rejected and the current price is below both EMAs. This seems to be an extremely bearish price action, although some might argue that this is a bullish flag pattern.
In fact, it could be a bullish flag, although to confirm this, EUR/JPY must break above the 126.67 with a daily close above. Only then this pattern will be confirmed, but up until then, it certainly looks like the beginning of a downtrend.
EUR/JPY is trading at the top of the range while rejecting multiple Fibonacci resistance levels. This might result in the beginning of a downtrend, where the price can drop by over 200 pips within the next few weeks.
The key support, confirmed by 2 Fibonacci retracement level and the downtrend trendline, is located at 121.90.
Daily break and close above 124.67 could confirm a bullish flag pattern, where the uptrend is likely to continue. Although the key resistance has been formed at 125.00 and it will be important to see a clear breakout of this supply zone. If/when this occurs, the trend up is likely to continue with a high probability.
Support: 123.68, 122.89, 121.90
Resistance: 124.46, 124.67, 125.00, 125.13