More big moves may be ahead for EUR/JPY with the European Central Bank (ECB) expected to hike interest rates this week.
Let’s take a quick look to see why traders may jump in long on EUR/JPY if the market pulls back.
What’s up forex fiends! Today we’re taking a look at the EUR/JPY currency pair, which made a strong bullish move last week after a bearish reaction in the Japanese yen sparked by the Bank of Japan.
Last Friday, the BOJ disappointed yen bulls by setting the expectation that a monetary policy review would likely take more than a year, dashing hopes that a policy normalization (i.e., interest rate hikes) would happen any time soon.
EUR/JPY spiked higher on the event, breaking above the previous swing high around 148.60 like a hot knife through butter, and nearly testing the 152.00 handle before running out of steam.
Looking forward, we’ve got the next big potential catalyst coming in the form of the European Central Bank’s latest monetary policy decision, which we’ve covered in our latest Event Guide today. Give that a read before setting up your own trade if a play in the euro is something you’re looking at this week.
For us, the level of uncertainty in terms of whether or not we’ll see a 25 bps or 50 bps hike is pretty high, so we’re looking to stay conservative on EUR/JPY until we get more information after the event.
But with the odds being high that the ECB will staying aggressive on monetary policy while the BOJ will likely keep interest rates at the lowest among the major currencies, we’re leaning bullish on the pair, particularly on any pullback this week.
From a technical standpoint, the EUR/JPY is currently taking a hit, likely on traders taking profits or paring risk ahead of the event. We’re also seeing a little bit of broad risk aversion sentiment play out today, likely due to worrying economic updates from the U.S.
If EUR/JPY continues to move deeper into the Fibs and retests the rising simple moving averages / broken previous swing high (around 148.60), we’ll be on the lookout for bullish reversal patterns before taking a potential long position, as long as the ECB stays hawkish on fighting inflation and does not signal a slowdown in tightening ahead.
If the ECB does signal a potential tightening pause ahead, that could spark a big round of profit taking from EUR/JPY bulls, who have been riding a solid trend higher all through April since the pair bottom mid-March around the 140.00 major psychological handle.
All in all, the EUR/JPY looks like a promising candidate to draw in some buyers on a pullback, but as always, it’s important to carefully consider your own capital circumstance, trading strategy and risk tolerance before making any trades. Happy trading!
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