We’re checking out a technical setup on EUR/JPY that may draw in traders into the longer-term uptrend after the recent drop. Is this the start of a new leg higher?
Short-term Bottom on EUR/JPY?
On the daily chart above of EUR/JPY, we can see the pair has been in a steady uptrend over the past three months, which actually is a part of a longer-term uptrend that goes all the way back to May 2020 where the pair bottomed out just under the 115.00 handle.
Based on this price action, the odds are highly in favor of the bulls in this pair, and those odds may have increased today as business sentiment updates from both the Eurozone and Japan make the fundamental case for the trend higher to continue.
According to the latest PMI surveys from Markit, the Eurozone is growing at its fastest rate in 15 years, while in Japan, the private sector continues to see contractionary conditions. Fundamental traders may price these updates into EUR/JPY going forward with expectations that future data will show the Eurozone is recovering at a faster pace than Japan, and possibly an exit by the European Central Bank from their pandemic support earlier than the Bank of Japan.
So with technicals and fundamentals currently favoring the bulls, the odds are pretty good that the retest of the broken resistance area around the 130.00 – 130.50 range was the short-term bottom.
Now the bounce from that area of around 260 pips was pretty quick given the weekly ATR of around 150 pips, so there’s a chance of a short-term retracement ahead, if the pair dips and buying support holds around the 130.00 – 131.00 range, that could be the price action that draws more bulls and begins the new leg higher in EUR/JPY.
Also keep in mind that this pair is sensitive to broad global risk sentiment, so if we do see a negative turn on the possibility of rising global interest rates, than that may be enough to shift traders’ focus away from the fundamental drivers in the short-to-medium term.
What do you all think? Is this a good buying opportunity on EUR/JPY for a longer-term play? Let me know in the comments section below!
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