EUR/JPY retreated after a substantial three-week rally was unable to have a daily close above the 100-day SMA. After making both a bullish butterfly pattern and a near two-year low at 126.08, the currency pair rose strongly until the end of last month.
Despite a bearish start to the London session, euroyen continued to rise from the session low of 133.09 after the European Commission released an upbeat economic forecast for the euro-zone. The report said, “Europe’s economies are benefitting from many supporting factors at once. Oil prices remain relatively low, global growth is steady, the euro has continued to depreciate, and economic policies in the EU are supportive.”
Overall, the bearish trend against the euro in general appears to be poised to return as economic prospects appear better for the U.S. economy.
In the short-term, 133.00 remains key support. If the bearish trend accelerates, immediate downward momentum may target the 38.2% Fibonacci retracement of the noted rally. Further support could come from the 50.0 Fibonacci retracement level and the 50-day SMA at around the 130.30 zone.
If the short-covering rally is not over and price does recapture the 100-day SMA, major resistance will come from the 137.50 level.
The trade: Sell EUR/JPY 132.85 with a stop loss at 133.85 and a take profit at 130.85. The Risk/Reward Ratio is 1:2.
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading