Yesterday’s decline in the EUR/JPY shows that a short term top has formed at 111.529 zone and has found support at 109.069 zone that was once resistance. The pull back could go as low as 105.651. It is now trading above the 200SMA and in the weekly chart the MACD has just crossed the signal line. Since November 2011 there has been characteristics of a Rounding Bottom Formation forming. Although it’s not perfect it does hold most characteristics of a Rounding Bottom.
Due to all of the above conditions are ripe for a bullish bias. We are waiting for a break above 111.529 which would should pave the way to 123.284 and continue the uptrend from 97.146. This would also signal a break of a major resistance level and complete the rounding bottom formation. A break of 123.284 would argue that the whole down trend from 170 in August 2008 is now over
To the downside we are looking for a break of 97.146 which would resume the downtrend from 123.284. We are a long way off that happening so keep your eyes glued on the 111.529 resistance zone.
Overall this is quite a nice set up and there is a lot of things working in our favor. These are the types of setups you want to trade. All you have to do is just wait for them. Even though things look optimistic with this set up you must keep a level head since there will be trades you lose. And if your head is so high with optimism and it’s a losing trade it can really knock you off balance for a couple of days. So stay calm and keep a level head. Do not let your ego get in the way. Every trade is a good trade if you have good setups.
What do the labels mean?
Red line - Support Level.
Green line - Resistance Level.
Arrows - Represent key points in the formation. If its a head and shoulders formation I will place arrows at the shoulders and head.
Thumb - When the price reaches near the thumb that is when we need to look for clues to enter.