Trade Recommendation: EUR/JPY
The Euro/Japanese Yen pair (EUR/JPY) started to look bearish in August 2008 when it failed to stay above 169 support. In the following month, the pair broke support of 150. This triggered the double top reversal structure on the weekly chart, which ignited a selling frenzy. The pair went in a downtrend as it generated a series of lower highs and lower lows until it bottomed out at 94.107 in July 2012. In four years, the Euro lost over 44% of its value against the Japanese Yen.
At this point, the pair was already flashing strong reversal signals. A long bullish divergence can be spotted on the weekly chart. In addition, bulls were able to recover and preserve support of 100. These attracted bottom fishers to enter the buying picture. They ignited a strong buying activity that pushed the pair to as high as 149.541 in December 2014.
As 150 is a firm market resistance, bears resisted the advance. They sent the pair to as low as 109.482 in June 2016. Fortunately for buyers at this level, EUR/JPY has been rallying since. It also looks ready to launch another uptrend.
Technical analysis show that the Euro/Japanese Yen pair is poised to take out resistance of 138. This comes after the pair generated a bullish higher low setup at 109.482. Breach of the resistance would trigger the large inverse head and shoulders reversal pattern on the weekly chart. Breakout from a pattern that took almost a decade to build would spark a huge momentum that can propel the market to our target.
The strategy is to buy the breakout at 138. Once breakout is complete, EUR/JPY will likely take out 150 first and build a new base above that level before climbing to our target of 167.
The process may take more than a year.
Weekly Chart of EUR/JPY on Forex.com
As of this writing, the Euro/JPY pair is trading at 130.58 on Forex.com.
Summary of Strategy
Buy: Buy on breakout at 138.
Stop: 130 after the breakout.
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