EURJPY is still moving inside the symmetrical triangle pattern on its 4-hour chart, as price just bounced off the bottom once more. Another test of the triangle resistance near the 136.00 major psychological resistance might take place since stochastic is indicating a return in buying momentum.
In addition, the 100 SMA is above the 200 SMA, suggesting that the path of least resistance is to the upside. Stronger bullish pressure might even lead to an upside break of the triangle resistance and further gains for the pair. On the other hand, a return in selling pressure could spur a downside break of support and spur a long-term downtrend.
The chart pattern is approximately 700 pips tall so the resulting trend from a breakout in either direction could last by the same number of pips. RSI is on middle ground, barely offering any good directional clues at the moment.
The main event risk for this trade is the ECB statement on Thursday, although no actual monetary policy changes are expected for now. ECB Governor Draghi is likely to reiterate their willingness to increase stimulus, especially since the headline CPI for September indicated that deflation was present in the region. In that case, EURJPY could be in for a downside break and further losses.
On the other hand, if ECB head Draghi decides to downplay market expectations of increased QE, this pair might have a chance at a rally and possibly even an upside triangle breakout. Data from Japan hasn’t been particularly upbeat as well, with forex market watchers also anticipating more easing from the BOJ at some point.
Risk sentiment might also play a role in this yen pair’s price action, as recent data appears to have kept risk-taking in play. Should this market behavior carry on for the rest of the week, EURJPY could be facing more upside in the next few days.
By Kate Curtis from Trader’s Way