Euro/yen (EUR/JPY) hasn’t been able to get out of its own way for a while but it’s still one of my favorite currency pairs.

I first wrote about this market for TraderPlanet on July 15. (Read that story here.) 

LOOKING BACK

At the time, it was tracing out a bull pennant on the weekly chart after respecting Fibonacci resistance at 132.037 – a 50.0% retracement of the 7/2008-7/2012 bear market. A pennant comprises a tight symmetrical triangle that results from a period of profit taking in which demand is too strong to allow price to fall. As you can see, weekly RSI averages had reached overbought conditions and had begun to deteriorate. Sideways price action as momentum weakens after reaching overbought readings is bullish because it means profit taking was absorbed without any meaningful price weakness.

KEY LEVELS

Price went on to break out from the pennant and get past resistance but immediately began to consolidate. This probably reflects the market being hit by supply based on the topping activity in 2009. This good news is that, once again, the market has absorbed supply without any damage to the chart structure. As long as the region of 131.200 isn’t breached, the path of least resistance will stay higher. That makes this an attractive long candidate as long as that floor isn’t taken out.

Good trading, everyone.

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