EUR/JPY Price Analysis:

INFLUENTIAL MACROECONOMIC BACKDROP PULLING THE STRINGS

Despite the poor GDP data of many restricted countries in the Eurozone, the euro has remained strong against the yen. Despite the expected sluggish numbers, the data of many countries were worse than expected, which unexpectedly did not prevent the euro’s bullish momentum.

A few weeks ago, I wrote a price forecast for EUR/JPY. Since then, the potential bull market signal has filled and exceeded the psychological level of 125.00. At least the euro can be said to be higher, but how long can this upward momentum last?

EUR/JPY: MONTHLY CHART

Chart prepared by Warren Venketas, IG

The long-term monthly chart above shows that the price movement has formed a multi-year symmetrical triangle (yellow). The price corresponds to the chart pattern, the latter tends to move further upwards to the top resistance (yellow circle). It broke the key 124.43 horizontal line (black), which can provide short-term support.

As we approach the apex of the triangle, traders may wish to continue trading within a symmetrical triangle. This long-term neutral pattern may produce a breakout in either direction, but traders usually lean toward the previous trend as a bias for the upcoming breakout. Option traders may seek strangulation or cross-share strategies to take advantage of possible large market volatility in either direction.

EUR/JPY: 4-HOUR CHART

EUR/JPY 4 hour chart

Chart prepared by Warren Venketas, IG

Dialing into the 4-hour chart, there is evidence of a strong uptrend with price trading within a rising wedge formation. This pattern is typically indicative of a bearish reversal when preceded by a downtrend which is not the case here, so caution is recommended before commitment.

An additional bearish signal can be seen from the Relative Strength Index (RSI) which presents bearish divergence whereby price is rising while the RSI is decreasing (black). This may fall in line with the descending upper trendline of the symmetrical triangle (monthly chart above) where price may revert lower once resistance is met. It is important to note that just because divergence is present does not mean price will reverse immediately, but may continue in a divergent state for a prolonged period of time as apparent thus far.

NON-FARM PAYROLLS ON THE HORIZON

The economic calendar has no high impact related announcements for the Eurozone or Japan over the next 7 days. Non-Farm Payrolls are scheduled tomorrow which should have some bearing on the pair although not directly related so trader’s should keep an eye for any large deviations from forecasts. With recent forecasts being significantly different from actual figures it would be no surprise if more of the same were seen tomorrow.

dailyfx economic calendar

DailyFX Economic Calendar

 

EUR/JPY STRATEGY MOVING FORWARD

Long-term price action points toward an extended bullish bias whilst acknowledging the boundaries of the symmetrical triangle chart pattern. A more granular look on the 4-hour chart will see traders anxiously awaiting the completion of the possible rising wedge formation.

Key trading points to consider:

  • Monthly: 124.43; 4-Hour: Diagonal support
  • Technical analysis – Daily: Symmetrical triangle; 4-Hour: Rising wedge and divergence
  • NFP data release tomorrow
  • IGCS data

IG CLIENT SENTIMENT INDEX SHOWS TUG OF WAR BETWEEN BULLS AND BEARS

 


Change in Longs Shorts OI
Daily 4% -18% -9%
Weekly 4% -26% -14%

 

IGCS shows retail traders are currently marginally short on EUR/JPY, with 51% of traders currently holding short positions (as of this writing). This points to a mixed signal, which may need a technical or fundamental catalyst to give traders further guidance.

Source link

2020-08-06