EURJPY Ascending Trend Channel (Feb 6, 2015)

EURJPY has been slowly treading higher, creating an ascending trend channel on its 1-hour forex chart. Price has just bounced off the bottom of the range around the 133.00 major psychological support and looks ready to test the top around the 136.00 major psychological resistance.

Stochastic is already indicating a pickup in selling momentum, as the oscillator has started to make its way down from the oversold area. The pair might resume the selloff from here, although it could still find a bit of support around the mid-channel area of interest at 134.50-135.00.

In that case, another test of channel resistance might take place before euro bears push the pair lower. Trend-following traders can wait for an actual test of channel support and stochastic confirmation before going long.

The path of least resistance is to the downside, as fundamentals suggest a weaker economic picture for the euro zone compared to Japan. However, the short-term return in risk appetite spurred by several central banks’ easing moves could lead to upside for this pair.

Bear in mind that the ECB has already implemented a large-scale bond-buying program and that they might wait for the impact of their latest QE program to kick in before taking more action. Meanwhile, the BOJ has been holding off any additional stimulus recently, although data from Japan suggests that they might need to ramp up easing once more.

With that, there could be a chance for an upside break sooner or later, once the BOJ starts admitting that further easing is needed. There are no event risks from both the euro zone and Japan today, although the upcoming US NFP release might have a strong effect on overall market risk sentiment. Strong figures could keep risk appetite in play, which might keep EURJPY supported.

By Kate Curtis from Trader’s Way