[December 9th, 2012] Euro - Japanese Yen has been making attempts to break over 107.95 for past 3 trading days but has been failing to do so. The drop took it to 106.12 before the currency pair closed for the week at 106.66.
The fact that EUR/JPY has not been able to break over 107.95 suggests that we can expect some downward consolidation. Please note that this zone had proved to be a very strong resistance area during April 2012 and a strong fall had taken place from here. But on the other hand the support came exactly at 22-day EMA and that keeps us neutral initially. The weekly MACD stays above the signal line very bullishly, while the daily MACD has moved below the signal line. This also indicates that some downward consolidation may take place while bullish sentiments continue to hold.
On the downside, any consolidation should find support first near 105.75/105.80. This support is derived from the Kijun line of daily Ichimoku cloud. Please check the technical outlook page. Any decisive break below this may take EUR/JPY to test the low of November 28th i.e. 105.28.
Here the psychological support of 105.00 would come into the picture and hence this level should prove to be a very strong support. With these supports holding, any break above 107.95 should bring further gains first towards the resistance near 108.65 (50% retracement of the downward move during April 10, 2011 and July 22, 2012) and then possibly towards 109.20 or above.
This target is derived purely from the psychological reasons as the resistance of 110.00 should start coming into the picture from this level. On the upside any sustained price action above 109.20 should target 110.00 psychological level.
EUR/JPY - Trading WIth The Current Price Action:
If the mentioned resistance near 108.00 holds then the pair should have a consolidation towards 106.00 and near that level the psychological support of 105.00 should come into pressure. Hence a short position just below 108.00 with a short stop-loss near 108.25 and a profit target of 106.40 can make a gain of over 150 pips with a risk-reward ratio of 1:6. On the other side with any sustained price action above 108.00 we can target 108.70 level with a long position.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.