EUR/JPY just formed a complex head and shoulders pattern or a triple-top on the 4-hour time frame. The pair is currently testing the neckline while stochastic is in the oversold region, which means that it could consolidate for a bit before breaking down before the end of the week.
Euro zone just released weaker than expected GDP reports earlier this week, pushing the region deeper into a technical recession. Germany posted a contraction of 0.6% for the last quarter of 2012 while France showed a 0.3% decline in economic activity. This fueled expectations of a rate cut or further easing from the ECB later on, causing a sharp euro selloff right after the release.
The selloff could continue until the end of the week even as traders position themselves for the G20 Summit. The yen could continue rallying heading off into the weekend as G20 leaders could criticize Japan for resorting to loose monetary policy to weaken their currency. Traders who have short yen positions could take profits on their trades and possibly result in an overall yen rally.
A short trade below the neckline (124.00) with a 100-pip stop will offer a 2:1 reward to risk ratio if you’re aiming for the next support area around 122.00 or a 4:1 reward to risk ratio if you’re aiming for the 120.00 handle.
By Kate Curtis from Trader’s Way