FxWirePro: EUR/JPY Minor Trend In Rising Wedge, Major Trend In Sloping Channel – Trading And Hedging Setup For Q1’2020

EURJPY’s minor trend has been spiking through rising wedge so far, (refer daily plotting). 

And major trend slides in the sloping channel (refer weekly chart), the channel breakout and the sustenance seem to be dubious as the failure swings have clearly been observed at the channel and the wedge resistances.

Occurrences of Shooting star and Gravestone doji at wedge resistance (to be precise, at 121.568 & 122.068 levels respectively) resume bearish sentiments in the minor trend. Although DMAs provide some sort of cushion but more slumps likely upon overbought momentum.

Thereby, the bullish sentiments in the minor trend are waning or even if there are any abrupt rallies, they would only be momentary and unlikely to reverse the major downtrend. You could observe the upswings from the last 3-4 months have shown exhaustiveness at the channel resistance. 

We could foresee the current trend likely to test stiff resistance of 122.500 levels. For now, more slumps likely as both the leading oscillators substantiate the overbought momentum.

RSI and stochastic curves show the upward convergence but faded strength at this juncture on both the timeframes. While the lagging indicators DMAs, EMAs and MACD are indecisive but still mildly bullish bias. The failure swings, on the contrary, remind overbought signals offered by the momentum oscillators, and likely to bring in a renewed weakness again. 

Overall, the major trend remains intact on the weekly terms as the overbought pressures have begun and MACD remains in bearish territory which is below equilibrium level. In fact, we advocated suitable strategies for the bearish swings in our previous write-up. We wish to continue them for the New-Year series.

On trading perspective, at spot reference: 121.790 levels, contemplating above technical rationale it is advisable to snap deceptive rallies and construct tunnel options spread, using upper strikes at 122.500 and lower strikes at 121.063 levels, the strategy with attractive risk/reward ratio is likely to fetch leveraged yields as long as the underlying spot FX keeps dipping but remains above lower strikes on the expiration.

Alternatively, we advocated shorts in futures contracts of far-month tenors with a view to arresting potential dips, since further price dips are foreseen we would like to uphold the same strategy.