EUR/JPY Technical Analysis: Down Trend May Be Resuming (27/08/15)
The Euro looks poised to renew its down trend against the Japanese Yen after prices broke through support guiding the correction higher from early-July lows. The cross has lagged selling in other Yen pairs as both currencies benefitted from spreading risk aversion but a degree of catch-up weakness may now materialize.
Sellers are aiming at support in the 134.98-135.11 area, marked by the August 5 low and the 50% Fibonacci expansion. A break below this barrier on a daily closing basis exposes the next downside threshold at 134.20, the 61.8% level. Alternatively, a push above the 136.03-11 zone – the intersection of trend line support-turned-resistance and the 38.2% Fib – opens the door for a challenge of the 136.96-137.16 region (July 10 close, 23.6% expansion).
While entering short is a thematically tempting proposition, risk/reward considerations argue against taking the trade. The available trading range is smaller than daily ATR, meaning even a short directly at near-term resistance would imply exposure to greater risk than the implied potential reward (assuming a stop-loss triggered on a daily closing basis as our strategy envisions). With that in mind, we will remain flat for now and wait for a more compelling opportunity to present itself.