LOOK AT EUR/JPY : Heading Higher
Why it will head higher
The first technical indicator is the 50% retracement of the January rally. Dow Theory has a 50% retracement principle. Typically Dow Theory applies to larger time periods and also to the Dow Industrial Average versus the Dow Transportation index. This theory uses closes above 50% retracement level to confirm continued bullish rallies.
The second technical reason is three drives to a bottom. This pattern tries to identify a bottom by using Fibonacci levels to confirm different legs of each drive and thrust. January 27th is where the first drive down occurred. After stabilizing around the 115.50 area, the 50% retracement level confirmed the peak of our first thrust. The second drive down was confirmed with the 141.4% expansion level of the first thrust move. The peak of the second thrust was confirmed with a higher retracement at the 61.8% level. A potential target for the bottom of the pattern lies with the 127.2% expansion level of the second thrust at 110.46. A confirmed break above our dynamic resistance yellow line could confirm a continued rally.
The third reason is our 200 day simple moving average. Recently, the 200 day sma has provided strong resistance and support for the pair. If we have confluence with all three technical indicators, our 50% retracement of the bullish rally, the three drives to a bottom pattern and the 200 day simple moving average; we could have a strong bullish reversal. A close below this level and our dynamic supports lines would negate our bullish reversals
You will also note that the current down move is a BULL FLAG !!!!!!!!!!!!!
Image for illustration
http://www.actionforex.c...rs/fxsol/2011020812.gif
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