The EURJPY is 1,000 pips from its August low near 149. The strong rally has some proclaiming that the uptrend is intact and that the EURJPY is headed to new highs. On the contrary, the technical picture suggests that upside potential is limited and that the decline is far from over.
In January, the EURJPY broke a 7+ year supporting trendline. The break of the trendline indicates that the bull trend is over and that lower prices are highly probable. We’ll zoom in on the following charts in order to gauge when the fast part of the decline will begin. Eventually, we expect the EURJPY to return to the major congestion area that is circled on the chart.
We are treating the top at 168.94 as the end of wave 3 (specifically, wave 3 of larger 5), the sharp 3 wave drop to 149.25 as a 4th wave and the rally to 167.64 as a truncated 5th wave. The reason for this is that the advance to 167.64 has all the characteristics of a 5th wave; dividing into 5 waves itself, an extended 3rd wave, etc. The best count then going forward treats the decline from 167.64 as a series of 1st and 2nd waves.
As mentioned, we view the drop from 167.64 as a series of 1st and 2nd waves (following a major truncated 5th wave). However, the EURJPY has yet to accelerate lower in a 3rd of a 3rd wave as expected. As such, a breach of 159.20 seems likely in order to complete wave ii as a complex (w-x-y) correction. Resistance should be strong near the 78.6% of 166.65-152.11 at 163.54.
For more on trends in ‘risk’, see Risk Trends.
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