EURJPY appears to have found forex support at the 200 simple moving average, which is close to the 61.8% Fibonacci retracement level on the 4-hour time frame. Weak euro zone inflation data sparked a round of euro selling in yesterday’s London session, but mixed Tankan survey results from Japan in today’s Asian session led to a bounce.
Price could continue to head back up now that the 138.00 handle has held as forex support as well. A break above the 100 SMA could confirm that further gains are likely, possibly until the previous highs near the 141.00 handle. MACD and stochastic are reflecting the pickup in buying momentum.
Forex Support Levels
On the other hand, a break below these recent forex support levels could lead to a stronger round of euro selling, which could push EURJPY back down to the previous lows at the 136.00 handle.
Going long at market with a stop below the 61.8% Fibonacci retracement level and a target at 141.00 could yield a high return-on-risk for a technical trade. The path of least resistance for this pair is to the downside though, as the weak euro zone inflation figures might spur more ECB easing and a EURJPY forex support break.
Both the ECB and BOJ are being urged to ease further as the euro zone and Japanese economies are both fundamentally weak. However, the ECB appears more inclined to pursue a dovish monetary policy, as Governor Draghi has already announced a couple of interest rate cuts and plans to implement purchases of asset-backed securities.
The event risk for this setup is the upcoming ECB rate statement, during which Draghi could clarify the size of the ABS purchases and address the recent concerns on targeted LTRO demand. Apart from that, he could provide more hints on whether unconventional easing tools will be used or not.
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