Hello Forex Traders!
The USDJPY has made a pretty impulsive drop yesterday with a bearish daily candle of 150 pips. Before we dive into the technical’s, it is wise to mention that the Bank of Japan (BOJ) has announced via a press conference that the central bank has provided enough monetary stimulus for now. This means that the BOJ will refrain from adding monetary stimulus.
The EURJPY too had a hefty 180 pip down day. But one of the most important factors, more important than 1 single bearish day candle, is the break of the daily support trend line and fractal / horizontal support at 129.40.
The break of this support level could have huge implications. One of the most dramatic scenarios could entail a 1,000 pip drop!
Therefore, read this article carefully and pay attention to all the details, because it could be of great value in your preparation and trading plan. Also, please don’t hesitate and be shy about writing down your opinion and analysis down below in the comment section.
EURJPY IN FOR DRAMATIC DROP?
The powerful and energetic up trend at the last quarter of 2012 and the first quarter of 2013 was very astonishing and dramatic. Could a drop have similar effects? Here are the most important elements in my opinion regarding the weekly:
1) Weekly chart is showing an oscillator returning to the 0 line. This gives a currency time to correct, decreasing the chance of trend continuation (upside on weekly) and increasing the chance of the currency going the opposite way OR sideways
2) The weekly bars on the AO are red, which is indicating bearish momentum.
3) If this weekly candle closes below 132.73, then we have a 1st Lower High on the weekly chart since June 2012.
4) Ironically enough, the EURJPY went up the 886 Fibonacci retracement of the last wave down on the weekly.
1) There was divergence between the tops, which is typical between waves 3 and 5. There was a resistance trend line as well (higher green). And the entire formation looked like a rising wedge.
2) The last daily move up took out the -0.272 target at +/- 134.18.
3) The subsequent move down from the peak broke the rising wedge, one could argue in 5 waves.
4) The bounce back up from 125 however was slow and tedious. Price action moved a weak angle of 40ish degree, which is not typical for an impulsive move as these tend to be around 60 degrees or more.
6) This recent up too had a rising wedge pattern (purple).
7) The break of the rising wedge was followed by a pullback and continuation, which thereby confirmed the Lower High and also a Lower low, placing the EURJPY in a down trend on the daily chart.
8) The respect of the 886 also created a head and shoulders pattern.
9) The currency respected the 886 Fibonacci retracement level (2nd Fib on the right).
10) The targets of those Fibs are the -0.272 at 122.53 and the -0.618 at 119.50. There is also a major bottom in place at the same level as the -618 (dark green). You still want to be careful of the bigger bottom at 125 (dark red), which could act as support.
Daily chart zoomed out:
1) A 5 wave up could have been completed (orange).
2) The reason why the 5th wave has 2 lines is because wave 5 could have ended at both tops.
3) A top at point 1 could mean that the correction might make a regular flat correction (sideways), which means that the support level (black) will be important (less likely).
4) At top at point 1 or 2, but viewed from the perspective that the currency could now make a zigzag impulse downwards would make the 2nd support level (blue) more important (more likely).
5) When placing a Fib on the entire 5 wave up, we that the 236 Fib has been respected already (blue circles) and that the 382 Fib has great confluence with the -0.618 target!
That is how a fall to 119 is possible, or in other words, a 1,000 pip drop!
Where and when will I actually trade it? My main moment is when the EJ were to make a pullback from current levels back to a Fib of the entire 1 hour move down. A bounce around the 500 or 618 Fib and price action confirmation and/or break of a fractal which shows the first sign of a lower low is what I am waiting for.
Hope you enjoyed the analysis how to trade trend reversals!
Thanks for the reading and make sure to share this valuable piece of info! 🙂 Thanks!
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