EUR/JPY Reversal Potential Following Four-Month-Bump
Yen-weakness took over in Q1 of 2021, very much helped along by the rates theme. With the Bank of Japan sitting on negative rates for more than four years now, the path of least resistance for the Japanese Yen – especially in ‘good’ times – will often be lower. That is owing to traders implementing carry trades in currency pairs where the Yen can be matched up with a higher yielding currency, like Australian or US Dollars.
In bad times, however, that theme can unwind very, very quickly – much like we saw in March of last year. Because, to be frank, a carry trade matters little if the principle portion of the trade is losing faster than the swap might accrue. And in a pair like EUR/JPY, where the ECB is nowhere near hiking rates while sitting on the lower bound themselves, that motivation for carry is similarly low; and any questions around economic performance can amount to quick declines.
In EUR/JPY, that feel good momentum helped to propel the pair to fresh two-year-highs in early March, 2021. But, price action got caught around a resistance cluster and was unable to continue the advance, sinking back-below the 130.00 figure as the ‘risk on’ trade started to look less attractive. On the chart below, I’m highlighting that resistance cluster around the 130.00 psychological level, which includes a number of confluent Fibonacci levels, as well.
EUR/JPY Monthly Price Chart
Chart prepared by James Stanley, created with TradingView
EUR/JPY Reversal Potential
Taking a closer look at the matter, the resistance tug-of-war in mid-March becomes a bit more apparent. Sellers are now pushing lower-lows on the Daily chart. And, while prices do remain above the bullish trendline, a break could entail a hasten the move with possible near-term support interest around the 127.50 psychological level that helped to set the January swing-high.
Bigger picture and longer-term, the 125.00-area remains of interest for deeper support. That psychological level held the highs through last October and November, and helped to set the January low. If sellers can really take control of the move, that spot around 125.00 could be looked at as an attractive area for subordinated support to show.
EUR/JPY Daily Price Chart
Chart prepared by James Stanley, created with TradingView
