EURJPY failed in its last few attempts to break past the 123.00 area, creating a double top formation on its 4-hour chart. Price has yet to break below the neckline at the 118.00 major psychological mark before confirming the longer-term drop. If that happens, price could fall by around 500 pips or the same height as the chart formation.
The 100 SMA is above the longer-term 200 SMA on this chart so the path of least resistance is still to the upside. However, the moving averages could be oscillating, which suggests that range-bound conditions might persist and support at 118.00 could hold.
Stochastic is dipping into the oversold area, which signals that sellers are getting tired and might let buyers take over. In that case, a bounce back to the range resistance at 123.00 could take place or at least until the middle around 120.50 to 121.00.
Economic data from the euro zone turned out mostly weaker than expected last week, with headline flash CPI down from 2.0% to 1.5% versus the 1.8% forecast and the core CPI down from 0.9% to 0.7%. German retail sales and unemployment change data turned out stronger than expected but data from France fell short of consensus.
As for the yen, Japanese reports also turned out mixed but the lower-yielding currency is taking advantage of weaker US bond yields and the pickup in risk aversion. Household spending is down 3.8% year-over-year versus the projected 1.6% drop while preliminary industrial production turned out stronger than expected.
Earlier today, Japan’s Tankan survey printed mixed results as the manufacturing component improved from 10 to 12 versus the estimated reading of 14 while the non-manufacturing component rose from 18 to 20, outpacing the consensus at 19.
By Kate Curtis from Trader’s Way