EURJPY is trending lower after recently breaking below its consolidation pattern with support at 121.00-121.50. Price is now moving inside a descending channel and testing support, possibly setting the stage for a pullback to the resistance.
Applying the Fib tool on the latest swing high and low shows that the 61.8% level lines up with the resistance and area of interest. If this area keeps gains in check, the pair could resume its drop to the swing low at 119.50 or much lower.
The 100 SMA is below the longer-term 200 SMA so the downtrend is likely to carry on. In addition, the moving averages are close to the channel resistance and Fibs, adding another layer of defense. Stochastic is on the move up to show that buyers are in control of price action while sellers are taking a break.
Economic data from Japan has been mixed, although the latest batch of reports printed stronger than expected results. Core machinery orders increased by 6.7% versus the projected 3.2% rise while M2 money stock also beat expectations. Prior to this, leading indicators advanced from 102.8% to 105.2% but average cash earnings fell short with a 0.1% uptick versus the projected 0.2% rise.
Euro zone data has also been mixed but ECB Governor Draghi has emphasized that they’re open to increasing the size and duration of their QE program if necessary. He downplayed inflationary pressures once again, citing the pickup in energy prices as a one-off boost.
German trade balance is due today and a larger surplus of 23.2 billion EUR is expected. In Japan, preliminary machine tool orders is up for release and another upside surprise could mean more yen gains. Note that the BOJ has upgraded its growth forecasts so no additional easing measures are expected in the near term.
By Kate Curtis from Trader’s Way