Technical Sentiment: Bearish
- Euro sell-off continued during the Asian and European session as negative rate swaps kicked in;
- EUR/JPY crossed below the 200-Day Moving Average;
- Possible double bottom bounce as EUR/JPY respects 29th April Low of 137.96.
This week’s bearish wave, triggered by the bearish engulfing bar on Monday, has reached the main support at 137.97. During the next sessions traders will decide whether the double bottom will hold and EUR/JPY will consolidate between 138 and 140; or if losses will deeper with a bearish break, toward 137.50 and 136.22.
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EUR/JPY is trading on the edge of a cliff right now, just several pips above the support line at 137.96. Besides respecting the level perfectly so far, there are no bullish price action signals so far to actually confirm a bounce. The scenario will become more credible if no 4H bars close below the support and the Daily close remains above 137.96 as well.
Daily Stochastic has not yet reached oversold territory, allowing for deeper losses in the coming days. With EUR/JPY already trading below the 200-Day Moving Average, breaching this support will cause a similar rapid decline towards the next support levels. The first real support is located at 136.21, marked by 4th February Low. This target would also represent 100% projection of the current range between 138 and 140. The second support line is 135.50, marked by a double top formation back in October 2013.
As long as EUR/JPY does not rally above 140, a very unlikely scenario right now, the current trend will remain bearish. A double bottom bounce should be capped at 138.80, 139.35 at most. It should also be noted that a double bottom bounce should be looked as an opportunity to sell any rallies, rather than a serious long trade opportunity.
Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets