EURJPY Head and Shoulders (May 25, 2015)

EURJPY could be in for a reversal from its uptrend, as price formed a head and shoulders pattern on its 4-hour time frame. The pair is already testing the neckline support at the 134.00 major psychological mark and might be due for a break lower since stochastic is still pointing down, reflecting that sellers have enough energy to push for a break lower.


The chart pattern is around 300 pips in height, which means that the resulting selloff could be of the same size. Sustained selling momentum could even take price down to the area of interest at 128.00. Price is also breaking below the long-term exponential moving average support, an early signal that a reversal is taking place.


The short-term EMA looks ready to cross below the long-term EMA, which would confirm the downtrend. From there, the moving averages might hold as dynamic resistance levels in market pullbacks.


On the other hand, if the neckline or EMA holds as support, price could still bounce back up to the previous highs around 137.00. The path of least resistance is to the downside though since the Greek debt situation has been weighing on the shared currency.


Although Greece has been able to meet its debt payments this month, it faces another set of loan obligations in June and might not be able to secure enough cash in time. With that, the prospect of a default and a potential euro zone exit has been raised once more, also sparking talks of debt contagion in the region.


Meanwhile, the yen drew some support from a relatively upbeat BOJ statement last week. The central bank refrained from altering monetary policy, with one member even voting to taper asset purchases. BOJ policymakers also upgraded their outlook for household spending and housing investment, suggesting that there might be no need to increase stimulus again.


By Kate Curtis from Trader’s Way