EUR/JPY Weekly Technical Analysis and Trade (May 31 - June 4 2010)

Weekly
Last Candlesticks pattern: Evening star
Time of formation: June 2009
Trend bias: Sideways

Daily
Last Candlesticks pattern: Shooting star
Time of formation: 14 Aug 2009
Trend bias: Up

Although the single currency resumed medium term downtrend as suggested in our previous update and reached our indicated downside target at 110.49 and 109.12, as the currency pair has rebounded from this week’s low of 108.83, suggesting a minor low has possibly been formed and consolidation with mild upside bias is seen for retracement to 114.40/50, break there would bring stronger rebound towards 116.13 (38.2% Fibonacci retracement of 127.95 to 108.83) but reckon the Kijun-Sen (now at 119.15 would remain intact.

On the downside, expect pullback to be limited to 111.50 and reckon 110.00 would hold and bring such a rebound later. Only below yesterday’s low at 109.20 would risk a retest of 108.83 and break of latter level would signal medium term downtrend is still in progress, then weakness to 108.35 (100% projection of 139.26-119.66 measuring from 127.95) and possibly 107.00 would follow before prospect of another rebound.

Recommendation: Buy towards 111.00 for 115.00 with stop above 109.00.

On the weekly chart, although euro fell marginally to 108.83 this week, lack of follow through selling and the rebound from there suggest a possible ‘hammer’ candlestick pattern formation is under way and if price close around current level today, this would add credence to this reversal pattern formation. Having said that, we need to see a long white candle to be formed next week in order to provide confirmation of a temporary low and bring retracement of recent decline towards the Tenkan-Sen (now at 118.37) but reckon the Kijun-Sen (now at 121.69) would hold.

On the downside, expect 110.40/50 to contain pullback and bring such a rebound. Only breach of this week’s low at 108.83 would signal downtrend is still in progress and extend weakness to 107.00 and 106.00 but reckon downside would be limited to 105.00 and 103.48 (61.8% projection of 169.97 to 112.08 measuring from 139.26) should hold.