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FX Analysis

Further upside for the Euro?

While looking for potential trading opportunities my preference is for instruments that have trend agreement across multiple higher timeframes, where the macro converges with the micro.  When it comes to showing strength from the monthly down to the daily timeframe, EUR/JPY ticks the boxes for me.

Starting with the monthly chart below, price has transitioned from a downtrend to an uptrend.  Since putting in a lower low in May 2020, price has since made a higher high, followed by a higher low and then a further higher high. This confirms the trend on the monthly timeframe, which is supported by bullish convergence on both the MACD & RSI indicators.

On the weekly chart, the price action is also bullish. On this timeframe there is also an uptrend in play following the low put in at the end of October.  The moving averages (MA) have just moved into a bullish fanning pattern, with the faster MA over the slower ones, all moving in the same upward trajectory.  Again, the MACD and RSI are converging, suggesting there may still be momentum in the trend.

Looking at the daily chart, price is in a smooth flowing uptrend with a clear series of higher highs and higher lows with the MA once again displaying the bullish fanning pattern that implies a strong trend. The MACD is clearly converging and the RSI, whilst it may be flat, is not showing divergence, suggesting that even though the trend has become well established, that it could still have momentum. This is an orderly trend with price always returning to the vicinity of the rising 10-day MA after it has become over-extended, often finding support exactly on the average itself.

In terms of a potential trade, price has already pulled back to the MA buy zone and a reversal candle has formed.  Assuming that this candle closes in a bullish configuration, I will be looking for a break of the high of this bullish candle, which would be my signal to enter a long position with a stop loss placed below the swing low. 

In the event that a trade entry does trigger, then I would consider closing half of my position once a 1:1 risk to reward has been achieved. I would then consider an open target for the remaining portion, moving my stop up should new swing lows form.


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