EURJPY has been trading inside an ascending channel recently but it seems that a corrective forex wave is about to take place. Price is approaching the top of the channel around the 137.00 major psychological resistance and may be due south again.
In addition, a bearish divergence can be seen, as price made lower highs while stochastic made higher highs. This indicates a buildup in selling pressure and a potential drop to the support around 134.50-135.00.
Forex Wave Pattern
Event risks for this forex wave setup include the BOJ rate statement in today’s Asian trading session, which might indicate a shift to a more downbeat bias. Data from the Japanese economy has been mostly disappointing, particularly when it comes to spending and inflation.
However, policymakers have said in their previous statement that the downturn in inflation is temporary and that the economy continues to recover. If they maintain this stance in today’s statement, the Japanese yen might rally and lead to an early selloff for EURJPY.
On the other hand, cautious remarks could lead to a sudden rally for the pair and potential upside break past the channel resistance. Volatile moves are expected today as most Asian traders are off on a Chinese New Year holiday and might mean lower liquidity in the financial markets.
Another potential catalyst for strong moves are the updates on the Greek debt talks, as the country has been given until Friday to agree to the bailout or risk defaulting on its loans. This could mean more euro weakness since most of the member nations are exposed to Greek debt and could suffer losses in the event of a default or “Grexit”.
The path of least resistance seems to be to the downside for now, unless a resolution for Greece is made. Officials are refusing to budge from their stance, which means that the decision could come down to the wire towards the end of the week.
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