EURJPY looks poised for more losses, as the pair recently made a forex breakout below the descending triangle support on its daily time frame. Stochastic is already in the oversold zone, indicating that a bounce might take place in case the break is a fakeout.
A rally could take the pair up to the previous highs near the 140.00 area, but the moving average downward crossover is suggesting that the path of least resistance is to the downside. MACD is also moving lower, which suggests that downward momentum is building up.
Forex Breakout Setup
Take note that the chart pattern is approximately a thousand pips in height, which means that the downside forex breakout and resulting selloff might last by the same amount. This could take EURJPY to the next area of interest around the 126.00 levels.
The event risks for this forex breakout trade include testimonies by Draghi and the German ZEW economic sentiment release later on this week. There are no major reports up for release from Japan, but the risk-off environment could keep the lower-yielding yen supported and give the forex breakout move some legs.
The path of least resistance is to the downside, as the ECB is much more dovish compared to the BOJ. Although data from Japan is also weak, the ECB already made its monetary policy moves by cutting interest rates in two instances and implementing targeted long-term refinancing operations. More stimulus efforts might be necessary as the targeted LTRO failed to draw enough support while euro zone data continues to lag behind.
As for the BOJ, policymakers admitted that industrial production remains weak after the April sales tax hike. They did stop short of announcing further easing measures for now as they believe that the economy will recover moderately in the next few months.
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