By: DailyForex.com
The EUR/JPY pair had a positive session on Friday, as it approached the 102 level. However, by the end of the day we saw the markets turn around and sell back off. This formed a shooting star, and this of course is a very bearish turn of events.
Looking around the markets, I noticed at the end of the trading day Friday that things are starting to look kind of bad for the Euro again. The reason I say this is that I see potential signs of weakness against so many other currencies. In this particular pair for example, I see that we are very well on our way to forming a descending triangle.
With even more telling about this triangle is the fact that it sits on top of the 100 handle. If that level breaks, we would have to think that this market is turning around as 100 is about as large of a round number as you can get. Traders around the world would notice this, and more than likely the selling would pick up. However, I do see a fair amount of support all the way to the 99 handle, so you could make a case for being a little cautious on your entry.
Bank of Japan
The one thing that could throw a monkey wrench in this potential trade is the Bank of Japan. The reason for this is that they have been trying to weaken the value of the Japanese yen for some time now. Through various interventions, credit swaps, and asset purchase programs, the Japanese central bank has been fighting the rise of the Yen.
Even if we break below the 100 handle, is very possible that the Bank of Japan could step in and cause problems. Is because of this that you simply must keep your stops relatively tight for the time being. While the risk of flat-out intervention is pretty low, knee-jerk reactions to announcements could be a potential problem. All things being equal now, I do like shorting this pair under the 100 handle, and think we will eventually revisit 95.