EURJPY has pulled up from its continuous dive in the past month and appears to be making a quick forex retracement. For now, it is stalling at the 38.2% Fibonacci forex retracement level, which is aligned with a former support zone and the 136.50 minor psychological resistance.
Stochastic is indicating overbought conditions, which confirms the potential return of sellers and a possible drop to the previous lows around the 134.00 area. At the same time, the 100 SMA has just crossed below the 200 SMA, reflecting a pickup in selling pressure.
MACD is moving higher though, which means that a higher forex retracement is still possible. The 200 SMA lines up with the 138.00 handle and the 50% Fibonacci forex retracement level, which might also act as resistance.
Forex Retracement Levels
Shorting at market with a stop above the 61.8% Fib or 138.50 and aiming for new lows could work for a longer-term trade. Adjusting the stop to entry once price tests the previous lows around 134.00 could be a good way to reduce risk ahead of key events.
The event risks for this forex retracement setup include the release of the German and French manufacturing and services PMIs later this week, with weak data likely to spur another round of euro selling. There are no top-tier releases lined up from Japan for the week, although risk sentiment could be a key driver of yen price action.
Recall that improving risk appetite allowed some yen pairs to gap up over the weekend and continues to support higher-yielding currencies for the time being. A return in risk aversion could renew demand for the lower-yielding Japanese yen and complete the forex retracement wave for EURJPY.
Geopolitical tension and fears of a worsening Ebola outbreak have been dominating the headlines recently, along with talks of another economic recession in the euro zone. These factors might be enough to usher in fear among investors, which could lead to a continuation in the EURJPY selloff.
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