Technical Sentiment: Bearish
Key Takeaways
- European traders will be returning after a prolonged weekend;
- JPY Final GDP q/q increased more than expected, by 1.6%;
- JPY Current Account fell short of expectations, at 0.13T vs. forecast 0.23T, but at least it broke the negative trend.
After very quiet start for the week, a state which is expected to continue in the coming sessions, the only notable reaction has been the EUR selling at a slow pace. While traders are still digesting ECB’s package, EUR/JPY remains stuck between the 200-Day Moving Average (support) and 140.00 (resistance), currently signaling a test of the former.
Technical Analysis
EUR/JPY is currently trading around 139.40 in the early hours of the Asian session, after rejecting off the major price pivot zone at 140.00. The pivot zone is also backed up by the 200 Moving Average on the 4H time frame, together with the 38.2% Fibonacci Retracement from the top at 143.46 down to May’s low of 137.96. This rejection led to the formation of a Bearish Engulfing Bar on the Daily chart.
Optimistic traders will most likely see this signal as a nice opportunity to test lower support levels, yet expectations should be kept reasonably in check. Considering this week’s predominant lack of heavy news announcements, there are no reasons to expect large moves in either direction. Consequently, a moderate consolidation between 138 and 140 should continue for a couple more days.
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Even with the recent 200-Day Moving Average bounce, the trend from April until present day remains bearish with Lower Highs and Lower Lows. The resistance at 140.00 is a momentarily a good candidate for a Lower High. For EUR/JPY to open up to the lower support levels, we must first see a break below the Bearish Engulfing Bar low at 139.25. This will set targets on 138.80 and immediately below on the 200-Day Moving Average, currently priced at 138.54. May’s Low of 137.97 remains the most important support level, and a break below it will mark the end of any consolidation scenarios.
Stochastic is turning bearish, currently exiting overbought territory, favoring the test of the support levels as well. Stops for swing traders should be placed above 140.10, since a rally beyond this resistance will invalidate the bearish swing configuration.
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Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets
