FxWirePro: Can EUR/JPY Double Bottom Counter Double Top Pattern? Bullish Engulfing Cushions Intermediate Trend

Technical chart and candlestick patterns formed – EURJPY has seen mild interim price rallies that are intensified from the last couple of days 

Thereby, the double bottom (DB) pattern has occurred with bottom 1 at 115.863 and bottom 2 at 117.072 levels (refer daily chart) and currently, trading well above DMAs with bullish MACD crossover. The DB pattern appears to be countering the previous double top pattern in the minor trend by showing mild upswings. 

On the flip side, bullish engulfing candlesticks have occurred at 117.845 and 119.662 levels, these bullish patterns have taken-off the prices above 7-EMAs and gives momentary cushion to the intermediate downtrend (weekly plotting). While both leading oscillators substantiate these upswings to reassess the downtrend and the lagging indicators yet to confirm. The interim upswings may extend but they are not game changer, they appear to be just momentary swings.

While the major downtrend remains intact as the bearish engulfing evidences price drops below EMAs (refer monthly plotting). 

For now, weakness is most likely to prolong as the bearish swings are backed by both momentum oscillators as both RSI & stochastic curves show downward convergence to the prevailing price dips that signal bearish strength & the intensified selling momentum and weakness remains intact on the monthly terms.

Trade tips: On trading perspective, at spot reference: 119.333 levels, on trading perspective, it is advisable to capitalize on the prevailing rallies and execute tunnel spread option strategy, using upper strikes at 120.003 and lower strikes at 118.296 levels, the strategy is likely to fetch leveraged yields as long as the underlying spot FX keeps dipping but remains well above lower strikes on the expiration.

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