Originally published by Guppytraders.com
The EUR/JPY is taking a graceful swan dive following weeks of consolidation between 120.5 and 123.5. The weekly chart shows two support features but they are a long way below the current level. This sets up a short side trade.
The first support feature is near 114.5. The second is slightly lower near 113.5. These support features reflect the long term structure of the market.
The defining feature of the EUR/JPY chart is the down sloping trading channel that starts in mid 2015. A channel is defined by parallel trend lines. A trading band is defined by horizontal support and resistance levels.
The upper edge of the channel acted as a resistance level. The lower edge of the channel acted as a support level. In June 2016 the EUR/JPY broke below the lower edge of the trading channel and developed good support near 113.5 For months the EUR/JPY hovered near this level, moving sideways until it re-entered the trading channel. The October 29016 rally from 113.5 was a rebound rally from support and from the lower level of the trading channel.
In an almost mirror image of the fall below the trading channel the EUR/JPY moved above the upper edge of the trading channel and developed a consolidation band between 120.5 and 123.5. It’s a pretty pattern, but meaningless in trading terms so traders avoid the temptation to draw conclusions from this mirror repetition.
The important feature is other fall below long term historical support near 120.5. The fall has no logical chart support features until it reaches the upper edge of the trading channel currently near 114.5. The fall may be as rapid as the November 2016 to December rise. We use the ANTSYSS trade method to extract good returns from these long term movements.
Historical support near 113.5 is consistent, but not necessarily strong. When this level was challenged in the middle of 2016 the EUR/JPY dipped to as low as 109.5 before stabilizing near 113.5. Traders must remain alert for these dips and sudden rebounds. Its good trading territory.
Daryl Guppy is a leading international financial technical analysis expert and special consultant to Axicorp. Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.