EUR/JPY Price Analysis

  • EUR/JPY consolidating after strong bull run
  • Medium-term and short-term picture displaying mixed signals
  • Eurozone economic announcements on the horizon
  • IG Client Sentiment (IGCS) supports short-term bearish bias

INFLUENTIAL MACROECONOMIC BACKDROP PULLING THE STRINGS

The Euro has been surging against G10 and EM currencies of late, with support from an efficient ECB and speculation about the Euro potentially evolving into a future reserve currency. Japanese Yen (JPY) has shown resilience with global market uncertainty at play with reference to COVID-19, surging US stock markets and US-China tensions as the main drivers. The search for yield and strength outweighed the ‘sanctuary’ of the Japanese Yen in favor of the Euro, which in the eyes of many market participants may provide greater yield along with growth potential should the Euro continue seeing favor against the US Dollar.

EUR/JPY: DAILY CHART

EUR/JPY daily chart

Chart prepared by Warren Venketas, IG

The daily chart above represents a possible bull pennant formation (yellow) that could see the recent swing high 124.29 level come into play if price breaks above trendline resistance. If price extends further to the upside, the 125.00 key psychological level may form ensuing resistance.

EUR/JPY: 4-HOUR CHART

EUR/JPY 4 hour chart

Chart prepared by Warren Venketas, IG

The short-term 4-hour chart gives a contrasting view as a succession of lower highs and lower lows are suggestive of declining bullish momentum. Price action expresses a solid horizontal support line around the 123.00 psychological level with topside trend resistance indicative of a descending triangle formation, however this is not preceded by a downtrend which may decrease its validity.

A breakout above resistance can be seen with resistance at 124.00 largely due to EUR options traders targeting further Euro strength. This spike may be short lived, and once options contracts have been closed out price may continue to hold within the descending triangle pattern.

DAILYFX ECONOMIC CALENDAR

dailyfx economic calendar

DailyFX Economic Calendar

The Euro will be under the spotlight tomorrow with key economic data scheduled (see calendar below). Core inflation is forecasted to remain the same while GDP figures are predicted to fall both QoQ and YoY which is expected considering the current economic climate. These figures are likely priced into the market already, but traders should monitor the data releases as large deviations from expectant data may source large market moves.

EUR/JPY STRATEGY MOVING FORWARD

Partialities for both upward and downward price movements are solid, which may see traders wait for a technical or fundamental catalyst for price and trend guidance. Will the Euro sustain its bull run further into Q3?

Key trading points to consider:

  • Daily: 124.29 swing high; 4-Hour: Topside resistance
  • Technical analysis – Daily: Bull pennant; 4-Hour: Descending triangle
  • Eurozone economic data releases tomorrow
  • IGCS data

IG CLIENT SENTIMENT DATA TORN BETWEEN BULLS AND BEARS

Change in Longs Shorts OI
Daily-11%-5%-8%
Weekly23%-8%2%

IGCS shows retail traders are currently marginally short on EUR/JPY, with 65% of traders currently holding short positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment, and the fact traders are net-short is suggestive of a price reversal to the upside however, with net-long positions rising more than net-short positions this favors a bearish signal.

— Written by Warren Venketas for DailyFX.com

Contact and follow Warren on Twitter: @WVenketas





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