Forex Watchlist: EUR/JPY Descending Channel

I’m hoping for a chance to hop in this EUR/JPY forex downtrend with all the volatility-inducing catalysts this week. Here’s my game plan:

At the moment, the pair is sitting right on the bottom of its long-term descending channel, which happens to line up with the previous year lows. A break below this 126.00 area could put EUR/JPY on track towards a prolonged decline, but I’m thinking that a pullback to the top of the channel might still be possible.

EUR/JPY 4-hour Forex Chart

EUR/JPY 4-hour Forex Chart

Using the Fib tool on the latest swing high and low shows that the 38.2% level coincides with the top WATR this week while the 50-61.8% Fibs are closer to the top of the channel and an area of interest around 131.00-131.50. Depending on the outcome of the upcoming BOJ statement and the euro zone CPI flash estimates, this might serve as an excellent sell area for a swing short position.

In particular, dovish remarks from BOJ officials could spur yen weakness, enough to take EUR/JPY up to the higher Fib levels. However, I’m inclined to think that the downtrend is set to resume since the ECB is also open to expanding its stimulus program by March. On the other hand, if the BOJ stubbornly refrains from easing, strong yen rallies could allow the previous week high to hold as resistance and even trigger a downside break from the channel support.

For now, I’ll be in a wait-and-see mode ahead of the BOJ event but I’ll be ready to jump in the game if the pair reaches my sell area. Make sure to read our risk disclosure if you’re also thinking of taking this trade and follow me on my social media accounts for quick updates.

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