FX.co ★ Elliott Wave analysis of EUR/JPY for February 5, 2013

Today's Support and Resistance levels:

S1: 123.87 R1: 125.01

S2: 123.07 R2: 125.49

S3: 122.57 R3: 126.14

Technical overview:

The break below support at 124.83 was our first warning that wave 3 could be over with the test of 126.97. Also the fact that we had a throw-over of the channel resistance-line and now has broken back into the channel; it is a warning of a possible top. That said we still need the final confirmation, which a break below 123.87 will provide. A break below 123.87 will leave us with an overlap between the possible wave four and wave one of wave v, which is not allowed under the Elliott Wave Principle, and therefore, will tell us that a top is in place already. If wave 3 is already in place and we have begun the bigger wave 4 correction, what can we expect? As wave 3 is clearly extended we should expect a minimum correction down to the 23.6% retracement target at 120.68, but a more normal target would be the 38.2% correction target at 116.79, which also marked the bottom of wave iv of one lesser degree. However, as long as support at 123.87 has not been broken we could see one last rally higher, but we need a direct break above 126.05 to confirm that.

Trading recommendation:

As our stop and warning point at 124.83 was taken out, we will stay neutral to see if important support at 123.87 is also taken out indicating that and important top is already in place.