The daily eurjpy chart is delicately poised right now, and there are several interesting aspects to consider, before arriving at some firm conclusions for the short and medium term.
First is the significant resistance level now in place at 133 where we saw the pair fail with a classic two candle combination of a shooting star, followed by a hanging man, at which point the pair duly sold off. This is shown with the yellow dotted line.
In the past few days the consequent bearish sentiment appears to have found some much needed support in the 125 region and this is now key and denoted by the purple dotted line. This region extends from the price congestion of early February, which was then breached in early April, which brings me to the next point.
This surge higher which was represented on the daily chart by six consecutive days of narrowing spreads coupled with only average flow, a clear sign that the big money was not taking part in this move higher. And for evidence of this we only need to consider the most recent price action of early June, where we do have ultra high volume on a hammer candle. This level of volume or activity is what we should have seen back in early April. After all, the first candle bar moved the pair from 119 through to 124.60, a huge move and yet the associated volume/activity was only average. Clearly a trap up move which has duly been validated by the subsequent move lower.
Moving to the volume at price, and if you ever wanted to see the power of this indicator this is a classic example, we have two ultra high and a high volume bar all now packed in a dense region of price action stretching from 124 to 132. This is why the purple line is now so critical and should this be breached then strong bearish sentiment will prevail as the pair now descend away from this wall of congestion, which will then become a formidable barrier of resistance.
Any deeper move will see the pair test the 120 level where a secondary platform of potential support awaits, created between late February and early April.
From a fundamental perspective, tomorrow’s FOMC statement is the key which will determine both the short and medium term direction for the eurjpy. Ben Bernanke has already tested market reaction with last month’s confusing statement, and having done so, is likely to confirm the news this time around. As always, the associated volume will validate the news and subsequent price action.
In summary, the eurjpy is at a critical point on the daily chart and like the eurusd is now waiting on Ben Bernanke, but remember the words of his predecessor, Alan Greenspan who once happily stated, ‘If I seem unduly clear to you, you must have misunderstood what I have said’ – what more can you say!
By Anna Coulling
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