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EUR/JPY Price Outlook: EURJPY Nearing 2020 High, RSI Overbought

EUR/JPY Price Outlook: EURJPY Nearing 2020 High, RSI Overbought

2020-07-23 16:21:00
Richard Snow, Markets Writer
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EUR/JPY Analysis:

  • EUR/JPY approaches the 2020 high amidst signs of potential buyer fatigue
  • The pair has enjoyed a strong bullish run since the 22 June swing low
  • IG Client Sentiment: shorts outweigh longs 1.68 to 1 as of this writing, while even more shorts have been added over the last 24 hours

EUR/JPY Approaches a Critical Resistance Level

The Euro has strengthened, most notably against the US Dollar, but also against the Japanese Yen as the Eurozone currency built on recent bullish momentum after announcing a €750 billion recovery fund to lessen the economic effects of the COVID-19 pandemic.

Taking a look at the daily chart below, the pair has risen sharply off the upward sloping trendline but has yet to reach, or break through, the 124.45 high posted in June.

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However, it is not unusual to see a retracement shortly after such a sharp rise in price. The RSI has entered ‘overbought’ territory (grey circle) and may shed light on a potential cooling off period. Crucially, the indicator has not yet shown a drop below the all-important 70-level and therefore remains in the background for now.

EUR/JPY Daily Chart: Price Nearing Yearly High

EUR/JPY Daily Price Chart

Chart prepared by Richard Snow, IG

EUR/JPY Strategy Going Forward

A break above the 2020 high of 124.45 would be needed to continue the current bullish run which will then bring into play the 125 psychological level, followed by the 126.78 level that can be seen on the weekly chart below. The positive divergence that appeared between August 2019 and May 2020 is supportive of a potential longer-term bullish environment for EUR/JPY.

From a bearish perspective, a failure to break or even test the 2020 high may be seen as an area of value for Euro bears which could see prices drop lower, towards the upward sloping trendline (daily chart) and perhaps even towards the next area of support (previously resistance) highlighted in yellow.

EUR/JPY Weekly Chart: Key Trading Levels

EUR/JPY Weekly Price Chart

Chart prepared by Richard Snow, IG

EUR/JPY Sentiment: Majority of Traders Expecting a Reversal

  • At the time of writing, retail trader data shows 37.28% of traders are net-long with the ratio of traders short to long at 1.68 to 1.
  • When operating with a contrarian view with respect to IG Client Sentiment, considering that traders are net-short would suggest EUR/JPY prices may continue to rise.
EUR/JPY BULLISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -5% 16% 8%
Weekly -12% 43% 16%
Find out where most EUR/JPY traders are positioned
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  • The number of traders net-long is 6.09% lower than yesterday and 14.33% lower from last week, while the number of traders net-short is 26.09% higher than yesterday and 6.25% higher from last week.
  • Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/JPY-bullish contrarian trading bias.

--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

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

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