The downtrend on EURJPY seems to be over, as price formed a double bottom forex reversal pattern on its 1-hour time frame and broke past the neckline resistance around 137.00. The pair is climbing past the 138.00 handle and may have a couple hundred more pips to go.
As you can see, the forex reversal chart pattern spans from the 134.00 area to 137.00, which suggests that the potential uptrend might last by as much as 300 pips. Stochastic is already in the overbought area though, which means that buying pressure is fading. At the same time, price is stalling around the 200 SMA resistance.
Reversal Pattern Scenarios
MACD is indicating that a bit of buying momentum is still present and that a few more gains might be possible. However, a selloff could take price back to the neckline, which is close to the 100 SMA support area. Bear in mind though that the short-term SMA is moving below the long-term SMA, which indicates a downtrend.
There are no major event risks for this forex reversal trade today, as there are no reports lined up from the euro zone and Japan. Risk sentiment might be crucial in determining whether the uptrend could carry on or not, particularly with the FOMC statement coming up.
A return in risk aversion could force the forex reversal to backpedal and for EURJPY to erase its recent gains, as more concerns about a global economic slowdown could trigger a flight to safety. On the other hand, a pickup in risk sentiment could lead to more gains for the pair and for the forex reversal to gain traction, as it would support higher-yielding currencies.
Bear in mind that Japan just printed a couple of stronger than expected economic reports, namely the retail sales and industrial production figures. These might lend support to the Japanese yen and convince traders that further BOJ stimulus is no longer necessary.
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