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Watchlist: EUR/JPY Downtrend Break Ahead?

EUR/JPY bears have taken solid control of the pair in the past couple of weeks, and if they’re able to break a major psychological level, there may be more downside ahead.

EUR/JPY Downtrend Break Ahead?

EUR/JPY 4-Hour Forex Chart
EUR/JPY 4-Hour Forex Chart

EUR/JPY bulls have had a rough go recently, especially in the last week as the pair once again met strong resistance around the 132.00 – 132.50 area before dipping to its current trading area around the 130.00 handle.

This area was the jump-off point for the last bullish bounce in late June, and given that this is a major psychological level, it’s highly likely the bulls are going to fight to hold this area once again.

If they can hold, there may be an opportunity for a short-term counter-trend move to the falling ‘highs’ pattern, where we think bears may be waiting to jump in again given the current environment.

Right now, risk sentiment seems to be souring on the idea that the strength in the pandemic recovery may be waning, largely due to the rapid rise in COVID-19 cases due to the more contagious Delta variant.

This is benefitting the Japanese yen this week as it tends to be the major currency that traders buy back into during risk aversion periods.

And given that the European Central Bank seems to be the most resistant to tightening monetary policy, likely more so with cases on the rise again, the euro likely has the highest probability of underperforming against the yen in this scenario.

So, we’ll be on the lookout for short EUR/JPY opportunities, either on a downside break/hold below the 130.00 level, or a possible short-term bounce (stochastic is signaling possible short-term oversold conditions) to the falling ‘highs’ pattern.

Bearish reversal patterns there is an attractive setup for both fresh short positions or scaling into current live short positions in this environment.

What do you all think?  Can EUR/JPY break the 130.00 handle or is it time for the bulls to take back control again? Let me know in the comments section below!

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.

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