Daily London Session Watchlist: EUR/JPY

Anyone in for a range setup?

EUR/JPY is consolidating inside a wedge pattern and currently testing the resistance.

Before we talk charts, make sure you’ve read all the major headlines that have moved the markets during the Asian session:

• Online brokerages restrict trading of GameStop shares, retail investors hit
• U.S. economy expanded by 4.0% in Q4 2020 vs. 4.2% forecast
• U.S. advance GDP price index down from 3.5% to 2.0% vs. 2.2% consensus
• Tokyo core CPI up from -0.9% to -0.4% y/y vs. -0.6% forecast
• Japanese unemployment rate steady at 2.9% as expected
• Japan’s industrial production slumped by 1.6% vs. projected 1.4% drop
• Australian producer prices up by 0.5% in Q4 2020
• Australian private sector credit increased by 0.3% vs. expected 0.2% uptick
• Japanese housing starts slumped 9.0% in December 2020
• Japanese consumer confidence index down from 31.8 to 29.6

Upcoming Potential Catalysts on the Economic Calendar:

• 6:30 am GMT: French consumer spending and flash GDP
• 7:00 am GMT: German preliminary GDP and import prices
• 8:00 am GMT: Swiss KOF economic barometer and Spanish flash GDP

What to Watch: EUR/JPY

With a handful of preliminary reports coming up from the euro zone in the next trading session, I think it’s worth keeping tabs on EUR/JPY’s wedge resistance test!

Weaker than expected results would confirm that the region is still reeling from the pandemic, likely dragging the shared currency south.

In that case, EUR/JPY might retreat to its wedge support around the 125.75 area. Stochastic is on the move down after all, which means that sellers still have the upper hand.

Although the 100 SMA is above the 200 SMA, the gap between the indicators has narrowed enough to hint that a bearish crossover might be due.

The German flash GDP, in particular, might be a catalyst for a drop as analysts expect a flat reading but there are strong arguments for a downside surprise.