EUR/JPY continues to trade in its key summer trading range that has been in place since the end of June. The 133.29 - 137.78 zone also has additional support and resistance from the 100- and 200- day SMA(s). This consolidating price action may last a couple more weeks, before we see sellers eventually take the currency pair towards the 130.50 area.
The euro rebounded at the start of the NY session after US ISM manufacturing leaked early at 52.7, much lower than the forecasted 53.5. If we see further weaker US economic prints leading up to the Fed's September meeting, we could see a shift away from a September rate hike. Perhaps consecutive sub 150,000 job gains on August 7th and September 4th could push the raising of the interest rate to December.
Price action on the daily EUR/JPY chart shows the key respect of the 200-day SMA. We may now see downward pressure support a slide lower towards the 100-day SMA. As we enter the peak vacation season in the US, thin conditions could easily support price moves to overextend our noted range. The bearish trend might take a couple more weeks to reemerge and drive the currency pair towards our longer-term target.
The trade: Buy EUR/JPY 136.25, with a stop loss at 137.25 and take profit at 130.50. The risk/reward ratio is around 1:6
Edward J. Moya
Chief Technical Strategist
WorldWideMarkets Online Trading