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11 Feb 2013
Forex: EUR/JPY, is 127.70 the top bears have been waiting for?
After a 12-week winning streak, with the exception of marginal losses in early December, the Japanese Yen finally managed to step into positive territory against the Euro last week, first fading the last longs to join the party at a key weekly resistance at 127.00/50 before a sharp sell-off led the spot rate to break through 124.00.
The decline off highs has produced 3 impulsive and gradually stronger daily candles, suggesting long-held buying positions may start to be liquidated after an evident upside weekly target was reached. Besides, from an order flow perspective, the latest fall precedes what appears to qualify as an exhaustion and climax bar.
According to renowned FX trader and founder of 2nd skies, Chris Capre, "the key things to be looking for in spotting these exhaustion and climax reversal bars are a bar that is much larger than the previous price action and ideally the largest bar in the mov, it occurs at/near a key support or resistance level, or after breaking a key support/resistance level, it occurs after several bars have been trending in an impulsive fashion in one direction..."
As Chris explains: "When trends are over-extended, they have had a lot of time to attract various players into the market, with the institutional players being first, the more advanced players who sniff out the new trend second, and the retail traders third.
By the end of a trend, as the retail traders get in, you have the greatest imbalance between buyers and sellers."
"Those who have not profited from the trend will often chase it feeling like they have to make money on this move by buying breakouts instead of pullbacks. Additionally, the institutional players will try one last push to get as much out of the market as they can – thus producing a climax or exhaustion bar" Chris adds.
We can see how Feb 5 high qualifies as an sizeable, above average bull candle, which also occurs at a key resistance as mentioned, with the price activity leading up to the temporary top very impulsive in nature since January 10. Furthermore, price has now spent the longest below the 20-EMA since the rally started, another potential sign that bear may be gaining traction?
Technically, the upward stepping formation which led to the 20+ big figure gain from Dec to Feb is also teetering, with the lower lows and higher highs structure breaking down -as clearly seen on a H4 chart - , adding weigh to a possible reversal in prices. At the moment, price is holding and treating key 124.00 low point/past support as resistance capping prices.
FXstreet.com contributor and FXWW founder Sean Lee, has also turned timidly bearish the pair, noting: "EUR/JPY is in retracement mode with possibilities for a move to 121.00. The next layer of support is near 122.30/50 whilst resistance levels should be firm near Friday’s highs at 125.50/60." Sean prefers to play the edges of this range with a bearish bias.
If one is to look for further confirmation that a sharper rotation may be brewing, perhaps waiting for a final push higher from recent lows with failure to make a higher high above 127.70 may further confirm the onset of a new short-term (for now) bearish bias. Furthermore, should price struggle to regain the upside of the 20ema on a potential bounce, this will also be signaling that market players are now using the indicator as dynamic resistance.
A break of 122.60/70, Jan 25 high, is likely to further destabilize the bull's control, potentially sparkling more liquidation. On the contrary, a recovery above 126.00 may lift up hopes for buyers for yet another attempt towards new trend highs.
Moreover, since we have observed a tight correlation between Japanese officials referrals to the Yen value and the sensitive reaction of the currency, the latest comments by Japanese Finance Minister Taro Aso, saying that "yen has weakened more than intended" may have opened a can of worms for the Yen sellers.
The decline off highs has produced 3 impulsive and gradually stronger daily candles, suggesting long-held buying positions may start to be liquidated after an evident upside weekly target was reached. Besides, from an order flow perspective, the latest fall precedes what appears to qualify as an exhaustion and climax bar.
According to renowned FX trader and founder of 2nd skies, Chris Capre, "the key things to be looking for in spotting these exhaustion and climax reversal bars are a bar that is much larger than the previous price action and ideally the largest bar in the mov, it occurs at/near a key support or resistance level, or after breaking a key support/resistance level, it occurs after several bars have been trending in an impulsive fashion in one direction..."
As Chris explains: "When trends are over-extended, they have had a lot of time to attract various players into the market, with the institutional players being first, the more advanced players who sniff out the new trend second, and the retail traders third.
By the end of a trend, as the retail traders get in, you have the greatest imbalance between buyers and sellers."
"Those who have not profited from the trend will often chase it feeling like they have to make money on this move by buying breakouts instead of pullbacks. Additionally, the institutional players will try one last push to get as much out of the market as they can – thus producing a climax or exhaustion bar" Chris adds.
We can see how Feb 5 high qualifies as an sizeable, above average bull candle, which also occurs at a key resistance as mentioned, with the price activity leading up to the temporary top very impulsive in nature since January 10. Furthermore, price has now spent the longest below the 20-EMA since the rally started, another potential sign that bear may be gaining traction?
Technically, the upward stepping formation which led to the 20+ big figure gain from Dec to Feb is also teetering, with the lower lows and higher highs structure breaking down -as clearly seen on a H4 chart - , adding weigh to a possible reversal in prices. At the moment, price is holding and treating key 124.00 low point/past support as resistance capping prices.
FXstreet.com contributor and FXWW founder Sean Lee, has also turned timidly bearish the pair, noting: "EUR/JPY is in retracement mode with possibilities for a move to 121.00. The next layer of support is near 122.30/50 whilst resistance levels should be firm near Friday’s highs at 125.50/60." Sean prefers to play the edges of this range with a bearish bias.
If one is to look for further confirmation that a sharper rotation may be brewing, perhaps waiting for a final push higher from recent lows with failure to make a higher high above 127.70 may further confirm the onset of a new short-term (for now) bearish bias. Furthermore, should price struggle to regain the upside of the 20ema on a potential bounce, this will also be signaling that market players are now using the indicator as dynamic resistance.
A break of 122.60/70, Jan 25 high, is likely to further destabilize the bull's control, potentially sparkling more liquidation. On the contrary, a recovery above 126.00 may lift up hopes for buyers for yet another attempt towards new trend highs.
Moreover, since we have observed a tight correlation between Japanese officials referrals to the Yen value and the sensitive reaction of the currency, the latest comments by Japanese Finance Minister Taro Aso, saying that "yen has weakened more than intended" may have opened a can of worms for the Yen sellers.