By: Mike Kulej
While the Bank of Japan threatens another intervention, the Yen keeps getting stronger. Not against all currencies, though. Intervention or not, the EUR-JPY holds ground. In fact, the Euro is gaining on the JPY and is in a process of building a head and shoulders, a major reversal pattern.
On the daily chart of this pair, we can see that the price have been drifting sideways since, following a big sell off. Within this consolidation, few important highs and lows stand out. The low of 107.30 marks the Left Shoulder, the low 105.42 is the Head while low 111.51 is the probable right Shoulder. At the same time, the high points of 114.21 and 115.66, when connected, form a Neckline. All these pieces together create the Head and Shoulder.
The reversal is not conformed yet. For that, we need a completed formation, which will only happen when the price breaks above the Neckline. At that point, the trend in EUR-JPY will “switch” to bullish, possibly moving as high as 125.00.
The Standard Deviation indicator can be useful when the H&S is completed. In order to confirm the breakout itself, it is best when this indicator shows increased reading. Currently it is flat, at the lower end of its range. We want to see it turn up with some authority.
