EUR/JPY Might be Rounding off a Price Top
Last week, the euro took a hit after ECB members indicated that the governing council was still in an aggressive stimulus mode. The market has been trading the euro as if the ECB were turning the corner and starting to be less dovish. Instead they seemed to be stepping on the gas. We can see this shift in the understanding of ECB’s stance as the EUR/JPY fell at the start and end of last week.
EUR/JPY already broke below a rising speedline from the May low of 133.10. Price also fell under the 100- and 50-period simple moving averages (SMAs) and then respected them as resistance. This “bearish sling-shot” signal is a strong indication of a bearish reversal for the short-term. Also the 4H RSI has fallen below 40, which reflects loss of the prevailing bullish momentum from April.
The EUR/JPY starts this week threatening a rising trendline from mid-April. A break below 133 should clear the trendline and make a new low on the month, which should complete the process of a rounded top.
Now, if price bounces off 133 or cracks it and rebounds immediately, we should monitor the 135 level. If price pushes above 135, the bullish outlook should still be in play, with the 136.96 high on the month as the first target. However, if price appears to be anchored below 135, we should expect further downside risk perhaps first towards the 131 area. We will see why the 131 area is important in the daily chart below.
In the daily chart, we can see that the market has essentially turned flat if not bullish. Now, in the flat OR bullish scenario, the 130.75-131 area. If price finds support here, we have a possible inverted head and shoulders pattern developing, which makes the 137 area even more important resistance to break to introduce the bullish scenario.
A break below the 130.75 area shifts the mode from neutral-bullish to neutral-bearish, with pressure on the 126.09 low down to 126 in sight.
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