EURJPY made a break below its symmetrical triangle last week but is still stuck in consolidation. Price is now stalling around the bottom of the descending triangle on its daily time frame.
Support is located at the 133.50 minor psychological level, with a break below this area likely to push EURJPY lower by an additional 800 pips or so. On the other hand, a bounce off the triangle bottom could lead to a climb back to the resistance near 136.00.
Stochastic and RSI are both pointing down, which means that sellers have enough momentum to push for a downside triangle break and a stronger selloff. However, the 100 SMA is still above the 200 SMA so the path of least resistance is to the upside.
Event risks for this trade include the release of several economic reports from Japan later on in the week, along with the BOJ decision. Data from the Japanese economy has been mostly disappointing recently, prompting speculations of additional stimulus from the central bank.
However, the ECB just recently shared their dovish bias, with Governor Draghi reiterating that they are looking at a range of monetary policy tools to implement if necessary. Data from the euro zone has been disappointing as well, especially when it comes to inflation and industrial production.
Any decisive action from either central bank could be crucial in determining the long-term direction of this pair. Both the ECB and BOJ are dovish but it remains to be seen which one is keen to act. Meanwhile, the latest set of interest rate cuts from the Chinese central bank appears to be keeping risk appetite supported for the time being, keeping the yen’s gains in check.
By Kate Curtis from Trader’s Way