EUR/JPY Trades Within A Flag Formation


traded higher on Friday, after hitting support near the 123.80 level. Overall, the pair looks to be trading within a flag formation following the Monday’s surge on the positive news with regards to a potential coronavirus vaccine. As long as the pair is trading within the flag, we will stay neutral and wait for the exit. According to the theory, those patterns tend to be bullish, but we prefer to wait for the completion before we start examining whether another round of buying is possible.

We would like to see a strong move above the 124.66 barrier, marked by Wednesday’s high, before we start examining whether the bulls have gained the upper hand again. The rate will already be above the upper bound of the flag and thus, the bulls may decide to initially aim for Monday’s high, at around 125.12. Another break, above 125.12, could extend the advance towards the high of Sept. 15, at 125.75.

Shifting attention to our short-term oscillators, we see that the RSI runs slightly above 50, but points down, while the MACD, although positive, lies below its trigger line, pointing south as well. These indicators suggest that there is very little positive momentum, and thus, we would not be surprised if the pair continues to trade within the flag for a while more.

In order to start examining the bearish case, we would like to see a decisive dip below 123.40, marked by the low of Oct. 23.  This may signal the downside exit out of the flag and may allow the bears to target the 123.10 zone, which is slightly below the peak of Nov. 5, and slightly above the high of Nov. 3. If the bears are still not willing to surrender, another move south could take the rate to Monday’s low, at around 122.72.

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