EUR/JPY Loses Everything Gained from BOJ Intervention

When the Bank of Japan (BOJ) intervened on Monday, the EUR/JPY exploded, moving all the way up to 111.56 – an immediate move of 420 pips! That sentiment was short-lived, however, as a dramatic selloff ensued almost immediately after. Since hitting that high (111.56) on Monday, the EUR/JPY has dropped 3.8% - currently trading at 107.34. Today's action has been contained between an intra-day range of 107.09 (low) and 107.89 (high) - a relatively small area given the recent volatility.

If you are looking to get short, the next support level comes into play at 106.49, followed by major support at 104.75. Beyond that, nothing comes into play until 100.73. As the seven month daily chart below highlights, despite the temporary surge, which may as well be considered a blip, the pair still is still being contained by a downward trend line which dates back to mid April. Fortunately for bulls, however, the EUR/JPY has found recent strength, and a short-term ascending trend line (dating back to the beginning of October) has also formed – providing at least some temporary hope. The two competing trend lines have formed what is known as a triangle pattern. The pattern highlights the fact that bulls and bears are locked in a fierce battle for control and that the confrontation is quickly coming to an inflection point. Once one of those lines breaks, whether it is the support or the resistance, look for a major move in the corresponding direction. At the moment, the trade is neutral, but that seems destined to change in the very near term. The perceived importance of the recent action can be highlighted by the increase in volatility. The average daily pip movement has expanded to 162, while the historic average is closer to 140 pips per day. Keep a close eye on this pair. A major move is imminent.