EURJPY has been steadily trading in a downtrend for the past weeks but it looks like a forex reversal could take place. The 1-hour chart shows a double bottom formation, which indicates that an uptrend is likely as soon as price breaks above the neckline resistance at the 127.50 minor psychological level.
Stochastic is moving down from the overbought region for now, which suggests that euro bears are taking control of price action. In this case, price could still move south towards the previous lows at 126.25.
Forex Reversal Outlook
If price breaks below support at the 126.25 mark, the forex reversal pattern would be invalidated. On the other hand, a surge past the 127.50 resistance could confirm that an uptrend is underway and that the pair could be in for around 125 pips in gains, which is roughly the same height as the chart formation.
Event risks for this forex reversal trade have already panned out, as the ECB made its rate statement yesterday. No surprises were seen, apart from the protester that attacked Draghi during the press conference. In any case, Draghi still confirmed that the ongoing quantitative easing program will carry on and that there is no shortage of bonds to be purchased, even as the euro zone is starting to show signs of a recovery lately.
As for the yen, the lower-yielding currency seems to be returning some of its recent gains now that risk appetite is improving in the financial markets. There have been no major reports released from the Japanese economy so far and none are due for the rest of the week, suggesting that this pair could be more sensitive to risk flows.
The shorter-term EMA is treading below the longer-term EMA for now, indicating that the downtrend is intact, but the indicators are moving closer together and suggesting that an upward crossover and forex reversal is looming.
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