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EUR/JPY Facing Critical Resistance

Last updated 2/24/2009 12:31 PM EST (GMT -5) 0 Comments - Add your comment

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FX360 Technical Analyst Staff

Technical Analyst, GFT

The EUR/JPY is facing an extraordinary amount Fibonacci convergence in what could turn out to be the trade of the week...

Prices have jumped to an intraday high of 1.2358 marking the completion of an extremely symmetrical bearish butterfly pattern in both price and time. In fact, there are several additional points of confirmation (see chart) that not only add to the probabilities of a bearish reversal, but far more importantly helps tighten risk. This allows for an extremely attractive risk-to-reward ratio of approximately 3-to-1 to the initial profit target of 120.61 (T1), and over 5-to-1 to T2 at 118.52.

In other words, we are selling the EUR/JPY with risk to 124.08, and targets at 120.61 (T1) followed by 118.52 (T2). We will look to take partial profits and move stops to break-even when T1 is achieved.

Remember, these patterns represent probabilities not certainties. As always, proper risk management must be observed as pattern failure indicates a continuation move may be in progress. That said, a move above current stop-loss at 124.08 suggests a potentially strong bullish continuation may be in progress up to fib/pattern resistance near 126.00-127.00.

Daily Chart - Potentially coming off newly developing bull channel after bear trendline break...	Daily Chart - Bearish butterfly pattern complete at D reflecting convergence of 161.8% of both XA and BC, as well as 61.8% of YZ

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