This post will review the 2 dominating scenarios for the EURUSD and USDJPY. Our post starts with the EURUSD.
GIGANTIC JANUARY CANDLE
The EURUSD has declined by a gigantic 1,000 pips during the month of January 2015 alone.
With less than 5 trading days remaining in this month, it seems virtually impossible that this month’s monthly candle will not turn out to be a massive bearish candle (unless the EURUSD creates a wick at the bottom of 30% or 300 pips or more).
What does a big bearish monthly candle mean for the EURUSD? Here are 2 scenarios:
- It is a bullish reversal signal. The previous 3 times the EURUSD had a massive bearish candle it was in fact the turning spot for a serious uptrend.
- It is a bearish continuation signal. Patterns in general can always break down. This time around the EURUSD might keep falling, just as it kept rising between 2002 and 2008.
Which scenario (A or B) seems most likely to YOU?
MOST LIKELY SCENARIO
I myself judge scenario B the most logical. Here is why:
- The three EURUSD bullish reversals occurred when the EURUSD was in a correction and larger wedge. This time around the EURUSD is in an impulse, which is a huge difference.
- The fundamentals are relatively pretty straight forward: the European Central Bank (ECB) is introducing Quantitative Easing in the Euro zone whereas the Federal Reserve System (FED) has completed its QE3.
0.90 – 1.00 TARGETS?
If scenario A indeed unfolds, then the big January bearish candle could easily be half way the entire downtrend. In that case we could make a projection of the EURUSD falling towards 0.92. In any case, with the -27.2 Fibonacci target broken, the next big target on the menu is the -61.8 at parity.
Whereas the EURUSD is having its biggest bearish candle yet, the USDJPY was not even able to break above the most recent top and is currently in a sizeable consolidation. The USD and JPY are currently, despite the uptrend, relatively equal to each other, which indicates a massive difference between the Euro (weak) and Yen (equal to USD).
Consolidation zones can be quite lengthy and when reviewing the weekly chart the USDJPY seems ripe for a contacting triangle (see screenshot). In any case, I do not see any signals of bullish trend continuation at the moment. Until a clear bullish monthly candle appears on the chart I remain on the sidelines and rather focus on shorting the EURUSD.
What do you think of the USDJPY? Do you find the UJ or the EURUSD better setup for trades?
THIS WEEK’S EVENTS
This week US Dollar news will dominate the market. Firstly on Tuesday with the CB consumer confidence and new home sales and then on Wednesday with the FOMC statement and Federal Funds rate. To get insight in these events and also commentary on the Greek political elections and their impact on the Euro, join our webinar on:
Tuesday 9:30am ET live with Casey Stubbs!
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Wish you Happy Hunting!
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