Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Chart of the week – Potential mean reversion rebound for EUR/JPY

Chart of the week – EUR/JPY

Potential mean reversion rebound for EUR/JPY (short-term technical analysis)

Time stamped: 22 Aug 2021 at 2:00pm SGT (click to enlarge chart)

Source: CMC Markets

  • The two and a half months of -619 pips decline seen on the EUR/JPY cross pair from its 1 June high of 134.12 to its recent low of 19 August has reached a significant medium-term support zone of 128.20/127.90.
  • The 128.20/127.90 medium-term support zone is defined by a confluence of elements; the former swing low areas of 2/24 March 2021, the lower boundary/support of the descending channel in place since 1 June 2021 high and the 50% retracement of the prior medium-term up move from 30 October 2020 low to 1 June 2021 high.
  • In conjunction, the 4-hour Relative Strength Index (RSI) has shaped a bullish divergence signal at its oversold region on last Friday, 20 Aug followed by a bullish breakout from its corresponding significant descending resistance at the 43% level during the US session on 20 Aug. These observations suggest that the recent downside momentum is likely to have lose its strength which in turn supports a potential mean reversion rebound in price action.
  • Watch the 127.90 key medium-term pivotal support for a potential push up to retest the 129.40 intermediate resistance (former minor range support from 4/13 August) and a break above it sees a further potential up move to target 130.30 next (range resistance from 16 July/2 August & the 38.2% of the recent decline from 1 June 2021 high to 19 August 2021 low).
  • On the flipside, a 4-hour close below 127.90 invalidates the mean reversion rebound scenario for an extension of the medium-term down move towards the next support at 126.35 (former swing high areas of 13 August/1 September 2021).    

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.