EURJPY appears to be making a forex retracement from its recent rally earlier in the month, as price has found resistance near the 141.00 major psychological level and pulled back to the 139.00 area. At the moment, the pair appears to be finding support around the 50% forex retracement level.
A deeper pullback could last until the 61.8% Fibonacci forex retracement level, which is close to the 138.00 major psychological support and a former resistance level.
Stochastic is already moving out of the oversold zone, hinting that buying pressure is ready to pile back on. This could push EURJPY back to the previous highs or at least until the 140.00 major psychological level.
EURJPY Forex Retracement
However, a break below the 138.00 area of interest and forex retracement levels could be a sign that further losses are in the cards, which could take EURJPY back to the next support near 136.00. This might depend on the event risks lined up from both Japan and the euro zone this week, with another slew of weak data expected from both nations. Take note that the ECB is set to have its interest rate decision this week as well.
No additional ECB easing measures are expected for the time being, as the central bank just cut rates for the second time this year in their latest rate statement. Apart from that, the targeted long-term refinancing operations have just been rolled out earlier this month, which suggests that Governor Draghi and his men might wait for the stimulus to take effect before adding more. The latest TLTRO has seen weak demand though, upping the odds that the ECB could implement more purchases of asset-backed securities as they hinted at in the past.
Going long at 138.00 with a stop around 137.00 and a target of 141.00 could yield a 3:1 return-on-risk. Aiming for new highs could improve the reward ratio but it would be prudent to have a trailing stop once price tests the previous highs.
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