EUR/JPY Daily Chart 9/19/2012 2:05PM EDT
Double Top vs. ABC Correction: The 1H EUR/JPY chart shows a market that is completing a double top pattern. The reaction to the BoJ’s announcement of stimulus was initially JPY-negative, but it firmed up very quickly, preventing the EUR/JPY from even reaching the 103.85 high. So it’s not the prettiest “double top”, but the break below 102.38 did show some bearish intent. This pattern could also arguably be a completely ABC correction with wave C=A equality, and has a bullish continuation scenario.
I would favor the latter, bullish outlook, if the EUR/JPY holds the 1H RSI above 40, if the price can push above 103.05.
However, the ability to hold under the 103.00 handle with the RSI falling further below 40 would reflect lost of bullish momentum, and suggest further bearish corrective intent toward the 200-hour SMA, which is near 101.35. This 101.35-101.65 area was a key resistance for consolidation during June – will it turn into support to catch a corrective decline?
Regression targets: In my charts, the bearish idea is a regression-to-mean idea, using the 200-SMA as a mean, and 3 std deviation bands to show overbought condition from a volatility perspective. In the 1H chart the market was pushing the upper bollinger band until it was unable to, showing lost of strong upside volatility. Regression to the mean in the 1H TF was to 101.35. In the 4H chart, regression to the mean is closer to 99.00. Before that, we should probably monitor the 100.66 pivot, and the 100.00 psychological handle for support.
Note that in a bullish market, we can’t always expect the regression to go all the way back to the 200-SMA; often, a flatter consolidation pattern forms. Also monitor the RSI if it nears 40 and stalls as that could be a sign of a completed bearish correction. The RSI has remained above 40 during the ride up from the July low of 94.10.
EUR/JPY 4H Chart 9/19/2012 2:17PM EDT
Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
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