The daily time frame for the Euro versus the Japanese Yen has been steadily making new lows each year, the most recent being the 110.62 low on May 6. Previous lows include 113.64 on October 27, 2008 and 112.10 on January 21, 2009. The continual push lower shows that bearish sentiment has not shifted, and that the downtrend persists. The Falling Wedge pattern that broke on May 5 (when prices traded lower through 122.80) was triggered the day before the dramatic sell-off in the U.S. equities market. Finding support since then has been a question of whether prices will indeed trade down to the 110.62 low that was reached during the frenzy of the equities meltdown.
In order for a downtrend to be broken or “reversed,” bearish sentiment must shift. Tracking this sentiment shift means finding key resistance levels that must be broken to the upside in order to signal that the bulls are in command. The recent rallies to 122.29 (R1) and 118.72 (R2) show where selling pressure waits – these are the two most likely resistance levels that will have to be broken on the daily chart in order to signal that the buyers can overcome selling pressure and therefore push the EUR/JPY higher. Additionally, notice that the Forecast area from 118.89 to 116.90 (F) for the Falling Wedge pattern is now acting a resistance. This shift, from an area that was initially support, occurred only after prices broke below the lower level of the Forecast. As long as the daily EUR/JPY remains below these resistance levels, negative sentiment will persist.
When daily time frame trend-following entry levels are far from current price action, as is the case with the EUR/JPY, traders will often look to shorter time frames in order to take advantage of near-term entries. The 60-minute EUR/JPY is setting up a scenario that could be repeated throughout the week across the 15-, 30-, and 60-minute charts: the Channel Down pattern could set up either an exhaustion at the resistance, currently at 114.98 (R) – which would trigger a short sell as long as prices remain below 115.05 – or a continuation short through downtrend line support at 118.90 (S).
These two entry opportunities are the most likely for this set up, since Autochartist’s Initial Trend reading, at the maximum ten-bar value, indicates a very strong trend. Keep an eye out for downtrending pattern alerts, like Channel Down and Falling Wedges, and follow the trend as long as the sentiment remains negative.
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