Outside-day Reversal Off Key Support Post-ECB

EUR/JPY is poised to mark an outside-day reversal off major weekly support and leaves the broader short-bias vulnerable heading into the close of the week. These are the updated targets and invalidation levels that matter on the EUR/JPY weekly price chart. Review my latestWeekly Strategy Webinar for an in-depth breakdown of this trade setup and more.

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EUR/JPY Price Chart – Weekly

Notes: EUR/JPY dropped into a critical support confluence at 120.02/25– a level defined by the 61.8% retracement of the 2016 advance and the 100% extension of the 2018 decline. Price is now poised to mark an outside-day reversal off fresh two-year lows on the back of today’s European Central Bank interest rate decision and the battle lines are drawn.

Initial resistance stands with the July high-week / weekly reversal close at 121.74 – note that the median-line of the broader descending pitchfork formation we’ve been tracking off the 2018 highs stands just higher. A breach / close above this zone is needed to suggest that a more significant low may be in place near-term with such a scenario targeting a rally back toward the key inflection zone at 123.35/65.

A break / close below this key support confluence exposes the January (yearly) swing low at 118.82 – weakness beyond this threshold would be needed to validate a break of the yearly openingrange and risk substantial losses towards the lower parallel / 2017 low-week close near ~1.17.

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Bottom line: EUR/JPY has now tested a critical support zone and puts the immediate focus on the 120.02 – 121.74 range – look to the break for guidance with the broader short-bias at risk while above 120. From a trading standpoint, a good spot to reduce short-exposure / lower protective stops. IF price is indeed heading lower, look for exhaustion ahead of 121.74 on a stretch higher with the broader focus still lower while below the median-line. I’ll publish an updated EUR/JPY scalp setup once we get further clarity on near-term price action.

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EUR/JPY Trader Sentiment

EUR/JPY Trader Sentiment - Euro vs Japanese Yen Price Chart - Technical Outlook

  • A summary of IG Client Sentiment shows traders are net-long EUR/JPY – the ratio stands at a staggering +2.05 (67.2% of traders are long) – bearish reading
  • Traders have remained net-long since April 25th; price has moved 3.7% lower since then
  • Long positions are 11.6% lower than yesterday and 10.1% lower from last week
  • Short positions are 22.4% lower than yesterday and 1.9% lower from last week.
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/JPY prices may continue to fall. Traders are further net-long than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger EUR/JPY-bearish contrarian trading bias from a sentiment standpoint.

See how shifts in EUR/JPY retail positioning are impacting trend- Learn more about sentiment!

Relevant Euro / Japan Data Releases

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— Written by Michael Boutros, Technical Currency Strategist with DailyFX

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