On Mondays, it is worth looking at the weekly charts and taking a look at the last few candles, as they can provide a lot of information about the sentiment of an instrument.
- Divergence on the weekly chart
- Broken confluence of supports signalling weakness of EUR
The situation on the W1 chart of the EURJPY pair indicates an upcoming correction of the uptrend that has been going on since May 2020.
This trend was initiated by the breakout from the inside bar, accompanied by the appearance of an upward divergence (marked with a green arrow).
The price rose by 1300p reaching last year’s maximum at 127.50.
The first weekly candle of the year formed an outside bar formation. In the following week the price broke out of the formation and a downward divergence appeared on the MACD.
Divergences on the weekly or daily charts are usually a reliable signal for corrections of a considerable range, often leading to a change of trend.
On the four-hour chart H4 we can see that since December last year the quotations moved in the growth channel, from which the breakout of the bottom on 14 January was very dynamic.
What is also worth noting is that the defeat of the support of the channel (blue line) coincided with the defeat of the line of the local upward trend (red), and the intersection of these two levels forms a confluence of support.
Downward divergence on the weekly chart and such dynamic overcoming of the support confluence suggests the beginning of the downward correction.
The nearest supply targets are the level of 125.20, and if defeated, the next demand zone 124.10.
The downward scenario can be negated if the price returns above the red trend line defeated last week and again finds itself in the area of the upward channel.
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