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Chart: This is where the euro/yen pair is headed

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Dan Kitwood | Getty Images

The euro/yen pair continues relentlessly and inevitably towards 120.

The addition to the chart is the upper trend line which is now acting as a resistance level. When this is combined with the lower trend line, this creates a "falling wedge" pattern.

A "falling wedge" is an elongated triangle that slopes downwards with the price rebounding lower between two converging trend lines. It is usually found in uptrends as a continuation pattern that slopes against the prevailing trend.

Sometimes, the "falling wedge" may materialize near the end of a prolonged downtrend where it can act as a reversal pattern. This suggests a longer-term bullish breakout for euro/yen but in the immediate short-term, the support target is near 120.

If the "falling wedge" pattern is projected forward then the intersection point of the wedge is near 112. The strength of the 120 support level suggests traders will watch for a rebound around July 2016. A rebound above 124.5 is a strong bullish signal and confirms the falling wedge breakout. The initial breakout upside target is near 127.

The breakout faces well established resistance levels created by a legacy of trading bands. The euro/yen moves between these trading bands using them alternatively as support and resistance levels. The 127 level is a well-established level and is will act as a resistance level.

We use the ANTSSYS trade and analysis method to identify the opportunities as the market retreats from near 120. This is traded with a tight stop using a customized ATR indicator.

The price peaked in December 2013, December 2014 and again in June 2015, resembling a head and shoulder pattern. If this pattern is valid then it gives a downside projection target near 110.

However, we do not see this as a valid head and shoulder pattern because the pattern development is interrupted to too many subsidiary highs. Additionally, it is not normal for these patterns to be spread over 3 years of development. Typically, these patterns develop over a 4 to 8 month period.

Traders and investors should watch carefully for trend reversal patterns to develop as the euro/yen rebounds from support near 120.