Forex: Is there evidence of parabolic moves in EUR/JPY?

By FXstreet.com | January 31, 2013 AAA

FXstreet.com (Barcelona) - The Euro and the Japanese Yen have enjoyed far different fortunes through the month of January, a period in which the European bloc's currency has also recorded its largest monthly gains vs the USD in over six months.

Against the Yen, for one to understand the magnitude of gains, the Euro posted the most gains since both began trading in 1999, up 10 big figures from 114.30 to now have the 125.00 handle at a stone's throw.

The question in many contrarian traders mind now is, how to figure out the best timing to short the cross?

As we can observe since early Nov 9 2012 when buyers started to commit more strongly to the trend, the dynamics of the move can be classified as non-volatile, with plenty of small-size daily candle which led, in turn, to very consistent gains. Signs that sellers were absent from the market.

As the trend matured, in early Januany some wilder 2 sides volatility emerged, forming a temporary range that broke with earnest on Jan 10, and here we get the first indication of a big 'above-average' impulsive run, followed days later - Jan 15,16 and Jan 18,21,22,23 - by a much greater selling force challenging the round 120.00.

Eventually, EURJPY had an upside resolution, which interestingly, left behind three of the largest bull daily candles of the entire rally, with Jan 25 rally expansion only confirming that rises had become significantly stretched vs the first 2/3 of the rally phase. The cross needed the last 17 days to make as much gains as in the first 60 days of the rally from the July 2012 bottom.

As a rule of thumb, when this volatile moves are more often than not the norm, this is the first evidence that a possible 'meaningful' exhaustion on the upside occurs as slow traders pile up int the trade with smart money deciding is time to take profit off the table. Beware of this pattern, as more often than not they might be resolved fast and furious.

For now, the EURJPY is capped by the topside of an ascending channel around 124.70. The fact that 125.00 is just overhead should add weight for sellers to emerge and try to challenge what appears to be early indications of a parabolic rise. Any upside setback should see a decent number of buyers parked around 123.00, yesterday's low.

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