Tradable Set-ups in 2 Dollar-Based Pairs

02/29/2012 6:00 am EST

Focus: FOREX

A potentially important cyclical bottom for the USD/JPY and a short-term rally in the overall downtrend in EUR/USD are two of the more compelling chart patterns in forex right now, writes Joel Kruger of

The USD/JPY is doing a good job of showing the potential for the formation of a major cyclical bottom after taking out the 200-day simple moving average (SMA) and now clearing psychological barriers by 80.00 for the first time in six months.

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This further solidifies basing prospects, and we could be in the process of seeing a major bullish structural shift that exposes a move towards 85.00-90.00 over the coming months. At this point, only a move back under 77.00 would delay the outlook and give reason for concern.

However, in the interim, it is worth noting that gains beyond 80.00 over the coming sessions could prove short-lived, with technical studies rolling from their most overbought levels in more than ten years and warning of some additional corrective declines towards previous resistance (now turned support) by 78.00 before bullish continuation.

In the meantime, on the EUR/USD, the latest break and daily close above 1.3325 ends a recent bout of multi-session consolidation and opens the door for the next upside extension towards the 1.3600-1.3700 area over the coming days.

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While our broader outlook remains aggressively bearish with a downside target by 1.2000 in 2012, the 2012 correction within the broader downtrend off of the 2008 record highs is still in play, and this shows potential for additional gains.

Still, we prefer to remain sidelined, as our bearish bias has us looking for opportunities to sell rather than attempting to buy into a corrective rally within a broader downtrend.

We would also not rule out the possibility for a topside failure ahead of 1.3600-1.3700, but given the latest break, the risk for additional gains seems like a very real possibility that needs to be considered and anticipated. Back under 1.3350 will be required, at a minimum, to alleviate immediate topside pressures.

By Joel Kruger, contributor,

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