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EUR/JPY Chart Hints Prices May Fall as 2-Year Downtrend Resumes

EUR/JPY Chart Hints Prices May Fall as 2-Year Downtrend Resumes

Ilya Spivak, Head Strategist, APAC

EUR/JPY TRADING Strategy: BEARISH

  • Euro may be preparing to resume 2-year downtrend vs Japanese Yen
  • Negative RSI divergence, Evening Star candlestick setup hint at topping
  • Confirmation needed on a break below Rising Wedge pattern support
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The Euro has staged a recovery against the Japanese Yen since setting a low in early September. The move tracked alongside a shift away from dovish extremes on the priced-in 2020 policy outlook implied in Fed Funds futures, pointing to an improvement in broad-based market sentiment as the catalyst at work.

That influence here probably reflects ebbing anti-risk JPY demand amid cooling concerns about US-China trade war escalation and a disorderly Brexit. Prices are now right at resistance marking the downtrend since early 2018, when a global economic slowdown started to drive unwinding of Yen-funded carry trades.

Euro vs Japanese Yen price chart - weekly

Weekly EUR/JPY chart created with TradingView

Zooming in to the daily chart seems to reveal that the upswing may be topping, setting the stage for the dominant downtrend to resume. The three-month rise has traced out a bearish Rising Wedge pattern. Negative RSI divergence hints at ebbing upside momentum, bolstering the case for oncoming reversal.

A sense of urgency appears to be telegraphed in the formation of an Evening Star candlestick pattern squarely at trend resistance. This suggests that a top may have been formed already. Nevertheless, confirmation on a daily close below the range floor is needed to make for an actionable setup.

Euro vs Japanese Yen price chart - daily

Daily EUR/JPY chart created with TradingView

The outer layer of support is now at 120.56. Breaking below that sees the next downside hurdle at 119.25, the November 14 low. Invalidating immediate topping cues requires a daily close above the latest swing high at 122.66. Neutralizing the broader bearish trend bias calls for a breach of trend resistance, now at 124.74.

EUR/JPY TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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