This text is from blog famous currency strategist Joel Kruger .
A RARE SIGHTING – Technically speaking, the EUR/USD close on Wednesday was pretty much as bearish as it gets. The formation is classified as a gravestone doji. This is a rare candlestick formation that manifests in a market that initially shows trend continuation, surging to fresh highs, before reversing sharply, giving back all of its gains, and closing exactly where it opened (daily low and daily close are also the same). The gravestone doji is a trend exhaustion/topping formation that quite often, opens the door for significant declines in the days that follow.
See daily forex technical analysis video made by Joel:
STILL…PROCEED WITH CAUTION – Throw in an already technically overbought daily chart, with the daily RSI above 70 (at the time of close on Wednesday), and the case for additional declines is even more compelling. From here, look for a break and daily close back below next key short-term support at 1.3140, with only a close back above 1.3310 to negate the formation. However, a continued word of caution that end of year price action is highly unpredictable and extremely challenging to trade. Personally, I am still not looking to add to existing exposure, and will only consider additional positions if the market is screaming with opportunity.
YEN AGAIN – Looking elsewhere, it is worth keeping an eye on the Yen and Yen crosses over the coming sessions. On Wednesday, I had warned of some over-extension in the Yen, with the currency highly oversold across the board. In my analysis, I cited a combination of overbought currencies against the buck and the weak Yen as a recipe for a sharp short-term reversal in the Yen’s favor. Wednesday’s daily close produced such signs.
SHORT-TERM EXPECTATIONS – Specifically, I isolated the EUR/JPY cross. With the Euro rolling over yesterday and the Bank of Japan policy decision behind us, the time for a very necessary and healthy retreat could be now. Throw in some profit taking and uncertainty in the equities markets, and I would be on the lookout for a pullback towards the 108.00 area at a minimum before considering the possibility of fresh upside.
