This pair lost 134 pips last Friday, with bad cpi data coming out and uncertainty about the Greek debt negotiations weighing on this pair. JPY, despite its weakening, is still seen as a safe haven currency, which means it is bought at moments of uncertainty. The currency pair traded most of last week in a sideways channel on the hourly and is currently testing its support at 132.4-ish after the drop on Friday. We could see more consolidation for this pair, in which case a channel trade might lead to a setup to go long. But I am looking at a different scenario with this trade idea. If you zoom out a bit, you can see the contour of a potential Bat pattern taking shape.
Should price break the channel support at 132.4-ish and drop further, it would pass the B point and be well on its way to complete the bullish Bat pattern. When defining the PRZ for a Bat pattern, we look at the projection of three harmonic levels. I: the 886 retracement of XA, II: an extended AB = CD pattern (in this case 1618 AB = CD) and III: the BC expansion (in this case 2000 BC). The three numbers define a clear zone of harmonic support, represented by the orange lines in the chart.
If this pair follows “the script” of this scenario, it would break the B point and reach the PRZ, where price action (PA) could test all levels, before stabilizing and reversing. Data will come out on Monday for both JPY and EUR that could give an impulse to this pair. Should this happen and should I see PA reverse convincingly in the PRZ, I would enter the trade long. SL goes 10 pips behind the next relevant support level. In principle, TP1 = 382 retracement of AD and TP2 = 618 retracement of AD, although in this case I have repositioned them slightly due to structure support and resistance levels.
There are 222 pips to be potentially gained and the reward – risk ratio of this trade is 3.9.
UPDATE: I mentioned two potential scenarios with this trade setup: (1) a channel trade going long at channel support and (2) completion of the bullish bat going long at the PRZ. PA followed the first scenario, reaching the upper channel line before breaking it.
Should price break the channel support at 132.4-ish and drop further, it would pass the B point and be well on its way to complete the bullish Bat pattern. When defining the PRZ for a Bat pattern, we look at the projection of three harmonic levels. I: the 886 retracement of XA, II: an extended AB = CD pattern (in this case 1618 AB = CD) and III: the BC expansion (in this case 2000 BC). The three numbers define a clear zone of harmonic support, represented by the orange lines in the chart.
If this pair follows “the script” of this scenario, it would break the B point and reach the PRZ, where price action (PA) could test all levels, before stabilizing and reversing. Data will come out on Monday for both JPY and EUR that could give an impulse to this pair. Should this happen and should I see PA reverse convincingly in the PRZ, I would enter the trade long. SL goes 10 pips behind the next relevant support level. In principle, TP1 = 382 retracement of AD and TP2 = 618 retracement of AD, although in this case I have repositioned them slightly due to structure support and resistance levels.
There are 222 pips to be potentially gained and the reward – risk ratio of this trade is 3.9.
UPDATE: I mentioned two potential scenarios with this trade setup: (1) a channel trade going long at channel support and (2) completion of the bullish bat going long at the PRZ. PA followed the first scenario, reaching the upper channel line before breaking it.
You don´t need to be a weatherman to know which way the wind blows - B. Dylan