Technical Sentiment: Neutral
Key Takeaways
- Heavy selling on CNY data miss puts pressure on JPY pairs as well;
- Euro zone GDP growth and inflation outlook cut by European Commission;
- EUR/JPY still moves within bullish channel, testing the support area.
The long term landscape still shows EUR/JPY stuck in a large triangle formation, however in the last month the pair has been respecting a tight bullish channel more than anything else. This week, irrespective of the preferred direction, EUR/JPY is bound to trade outside the triangle formation, which in turn will increase volatility and daily moving ranges.
Technical Analysis
EUR/JPY is trading just around 141.50 after testing the support trendline of April’s bullish channel which coincides with the support of the larger triangle formation. The 50-Day and 100-Day Simple Moving Averages offer support between 141.27 and 141.43. On the 4H chart, all major moving averages are close to the support area as well.
On the 4H timeframe, Stochastic is in oversold territory, bringing up the possibility that the current dip might reverse here, allowing EUR/JPY to continue higher within the bullish channel. The first target towards the upside is marked by last week’s highs around 142.40. A rally above 142.70, the resistance represented by two trendlines, will open the way towards 143.45 (April’s high) and 143.77 (top from early March).
The bullish continuation will be invalidated if price drops below 141.27, breaking the bullish channel configuration. Further confirmation towards the downside comes on a cross below 140.96. Once a lower low is formed, the preferred strategies will be selling support breaks and rallies since the short term trend will be bearish. Below 140.96, EUR/JPY will first eye the large psychological level 140.00. The support from February, priced at 139.10, is the secondary target.
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Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets
