Op-Ed: Euro-yen breakout targets loom on the upside

  • Euro/yen target near 131
  • Variation of double-bottom pattern sets new long-term uptrend
Euro Yen banknotes
Tomohiro Ohsumi | Bloomberg | Getty Images

The most significant feature on the euro/yen chart is the breakout above resistance near 123.5. This signals an important sustained change in the trend. The euro/yen retreated from resistance near 123.5 in 2017 January.

The euro/yen found support near 114.5 which was the short-side trade target we set in February. The rebound rally from 114.5 creates a variation of the double-bottom pattern and this pattern is used to set new long-term upside targets for the euro/yen near 131.

The defining features of the euro/yen chart was the down sloping trading channel that starts in mid 2015 and the support level trading band between 113 and 114.5. A channel is defined by parallel trend lines. A trading band is defined by parallel horizontal support and resistance levels.

The channel pattern is important because it defined the price activity for 18 months. It shows the euro/yen has a strong tendency to move in a trading channel so traders are alert for the future development of an up-sloping trading channel.

The support trading band is more important for the current development. This support band is between 113 and 116. The rally rebound has developed from the upper edge of the support trading band near 116.

The distance is measured from the upper edge of the support band and the upper edge of the resistance level near 123.5. The value 7.5 is projected upwards above 123.5 and gives an upside target near 131.

This pattern target level is a little below the long term historical resistance level near 132 so this suggests the breakout above 123.5 can reach as high as 132.

Support developed near 127.5 in 2015 March. This level acted as a short-term resistance level in 2016 March. The rally move to the pattern target near 132 has to pass through the minor support and resistance level near 127.5 so traders will watch for consolidation behavior near this area.

The potential for the euro/yen to reach the 131 chart pattern projection target is confirmed by the Guppy Multiple Moving Average indicator. This is applied to the weekly chart. The long-term group fob averages has compressed and is beginning to turn upwards.

This behavior is usually associated with a long term sustainable change in the trend. The short term group of averages have also moved above the long term group of moving averages. This is a bullish relationship and confirms the high probability of a sustainable trend change.

Investors watch for consolidation around 123.5 and they prepare for a continuation of the breakout towards 123.5 with a longer term upside target between 131 and 132.

We use the ANTSYSS trade method to extract good returns from these long-term movements.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.

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