The euro appeared to break higher against the yen early in Tuesday trading but it was forced back by worries about sovereign debt in Greece and Ireland. The mid-day rally above resistance followed by a reversal set-up a bearish daily signal that could potentially be a false breakout. It could also be a real break out. Either way, expect a big move in EUR/JPY in the coming day(s).

Notice how the pair rises above resistance on the last candlestick but then closes lower in a gravestone doji that could evolve into an evening star. As we have mentioned here many times in the past, we love to look for doji stars at points like this because volatility usually follows.

What makes us extra excited about the coming day or days of trading is that Wednesday is the final trading day of the month, quarter and Japanese fiscal year. Thursday will be the first day of a new month, new quarter and new Japanese fiscal year.

When the technicals and the calendar both point to high volatility we get excited and ready to trade.

So which way is the market going to go? We don’t have a position at the moment but we believe there is a big move coming and once we get some confirmation about the direction, we will be riding it for many pips.

A rally to the upside would create a classic inverted head-and-shoulders pattern — a text book formation. The target would be 130, or the 200-day moving average. We would look for a rally above 126 as confirmation of the up move.

A rejection of the resistance line and confirmation of the false breakout would come witha fall below 124. Our initial target on this move is 122 and potentially 120.

Our bias is to the upside be we are going to wait for the technicals to align.