EUR/JPY finally hits major resistance and the bulls are having a tough time breaking. Is there going to be a major reversal ahead?
Major Resistance Retest on EUR/JPY
Last week, I threw EUR/JPY on to my longer-term watchlist, waiting for a retest of the major resistance area around the 126.50 – 127.00 area. Initially, I was looking to buy if the pair broke higher on very positive business sentiment updates from Europe. But what we got was a mix of positive manufacturing data and disappointing data, understandable given how the covid pandemic has slowed the service industry all around the world.
And this week, it looks like traders are now putting more weight on the rapidly rising covid cases/ hospitalizations over any fresh vaccine or stimulus news, which could mean the yen may be support more than the euro if the overall environment turns negative.
And of course, the major catalyst of the week for the pair is likely the upcoming monetary policy statement from the European Central Bank, which is expected to expand the Pandemic Emergency Purchase Program by around 400-600B EUR and extend it until the end of 20221, or may be even 2022.
I’m watching out for two scenarios to play out to potentially make a move on EUR/JPY:
If we do see the ECB expand stimulus, the risk environment remains negative on covid fears (or if any financial market fears arise), and the 127.00 handle fails to break, I’m taking that as a short signal on EUR/JPY.
If the ECB expands as expected but the euro rallies, then it’s likely traders are pricing in a European recovery. If the risk environment shifts toward positive by then (i.e., a refocus on stimulus / positive pandemic developments) then I’ll watch for a break above 127.00 to go long on EUR/JPY.
What do you guys think? Are the bulls waiting for EUR/JPY break higher, or will the bears take charge once again for a swing move lower in December?
Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.