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EUR/JPY Responding Bullishly to Daily 34-EMA - Decline Finished?

EUR/JPY Responding Bullishly to Daily 34-EMA - Decline Finished?

2014-01-06 11:05:00
Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- Euro benefits from stability in regional PMI Services data.

- British Pound continues underperformance amid selling on softer PMI data.

- Recent trade ideas: GBPCHF hesitating near breakout level; EURAUD consolidating after steep decline.

To keep up with the European data and news as the week goes forward, be sure to sign up for my distribution list.

Intraday Price Perspective

EURJPY_Responding_Bullishly_to_Daily_34-EMA_Decline_Finished_body_Picture_1.png, EUR/JPY Responding Bullishly to Daily 34-EMA - Decline Finished?

A scan of this morning’s best and worst performers via the Strong/Weak app shows that the British Pound continues to suffer on relatively longer-term timeframes (H4 and D1). While the Euro is lower on D1, it is worth noting that it has rebounded aggressively to lead the pack on the H4 timeframe, specifically against the Japanese Yen. The Euro had been a broad underperformer the past several days.

With significant event risk over the coming days – mainly the European Central Bank policy meeting on Thursday – the EURJPY may be in the process of seeing any modest dovish expectations being priced in after a series of declines from the highest exchange rates since 2008. A technical breakdown of the D1 then then H4 timeframes exhibits the potential return of bullishness:

TECHNICAL ANALYSIS – CHART OF THE DAY

EURJPY Daily Chart: June 2013 to Present

EURJPY_Responding_Bullishly_to_Daily_34-EMA_Decline_Finished_body_x0000_i1028.png, EUR/JPY Responding Bullishly to Daily 34-EMA - Decline Finished?

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- Price has responded ahead of the daily 34-EMA, currently at ¥141.31; at the time of writing, the EURJPY was trading nearly 100-pips higher at 142.30 (daily low set at 141.49 thus far).

- The EURJPY has closed above the daily 34-EMA each period since November 12. Price responded ahead of the daily 34-EMA on a slump from November 20-21.

- A daily Hammer (bullish reversal candle) is forming as a result of today’s price action thus far.

EURJPY H4 Chart: November 24, 2013 to Present

EURJPY_Responding_Bullishly_to_Daily_34-EMA_Decline_Finished_body_x0000_i1029.png, EUR/JPY Responding Bullishly to Daily 34-EMA - Decline Finished?

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- A look at the H4 timeframe reveals that the daily Hammer formation is a Morning Star candle cluster (bullish reversal pattern).

- The potential reversal pattern coincides with price breaking the downtrend from the recent highs; price needs to sustain 142.20 in this aspect during today’s session to build confidence in a return higher.

- The series of lower highs in price over the past few days have coincided with lower highs on the H4 Slow Stochastics (5,3,3); this series of lower highs in the indicator is breaking higher alongside price (bullish confirmation).

- Price attaining 143.00 over the coming sessions would give priority to longs against the daily 34-EMA, today at 141.31.

- A rebound to at least the highs near 145.65 would be targeted; failure to do so might be indicative of a top developing in price.

Here’s the other data influencing and that will influence European FX price action today:

EURO-ZONE ECONOMIC CALENDAR

EURJPY_Responding_Bullishly_to_Daily_34-EMA_Decline_Finished_body_x0000_i1030.png, EUR/JPY Responding Bullishly to Daily 34-EMA - Decline Finished?

UK ECONOMIC CALENDAR

EURJPY_Responding_Bullishly_to_Daily_34-EMA_Decline_Finished_body_x0000_i1031.png, EUR/JPY Responding Bullishly to Daily 34-EMA - Decline Finished?

SWISS ECONOMIC CALENDAR

There are no data on the Swiss Franc economic calendar for Monday, January 06, 2014.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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

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