Weekly Forex Update: EUR/JPY

After breaking through the downtrend line resistance of a Falling Wedge pattern at 110.00 (E) on the daily chart, the EUR/JPY has rallied to prior resistance between 113.30 and 113.40—well shy of the Autochartist Forecast area between 115.07 and 121.75 (F). The likely reason for the stall that came after the pattern reversal higher is the current market cycle, which still shows a strong eight-bar Initial Trend reading. This suggests there is still a strong downtrend on the daily chart; add to this the weak, two-bar Autochartist Breakout reading, and it seems the low bullish momentum that accompanied the pattern break was simply not enough to immediately push the EUR/JPY pair higher towards the Forecast area above.

The range-bound price action currently preventing the pattern reversal from following through higher can be better measured with a more recent pattern alert on the same time frame: the Ascending Triangle pattern that formed over the course of the previous 24 candles. This 24-candle range shows the characteristics of an accumulation cycle, with lower volatility and a narrow trading range. The Initial Trend reading here is just three bars, which confirms both the lack of trend and the sideways price action.

The accumulation cycle is best traded by setting up an Autochartist Initial Movement/Momentum entry, which requires that either the upper line of the pattern is broken at 113.35 (A), or that prices fall lower through the support that is now at 110.05 (B). If a rally can trigger a breakout buy entry, the Falling Wedge reversal that triggered earlier may then follow through higher towards the Forecast area. If prices fail to break higher, bearish market sentiment will remain the dominant psychology and prices will likely continue to trade within the larger range between 107.33 and 114.15.