EUR/JPY Technical Analysis: ECB-Weakness a Mere Blip in the Trend

21 December 2016, 20:28
Mohammad Soubra
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EUR/JPY Technical Analysis: ECB-Weakness a Mere Blip in the Trend


 Talking Points:

  • EUR/JPY Technical Strategy: Intermediate-term bullish; near-term price action facing rigid resistance.
  • The price action zone from 123.09-124.09 has continually-thwarted price action’s top-side advance for the past two weeks.
  • The ECB extension of QE two weeks ago is now showing as a mere blip in recent price action, setting a higher-low and a week later another higher-high. With this trend remaining bullish, even after the ECB drove bearishness into the Euro, traders would likely want to take note that ‘something bigger’ is driving near-term price action (Yen weakness).

Previously, we looked at the potential for a new higher-low in EUR/JPY after the European Central Bank extended QE. After this announcement, the Euro was offered-hard across-the-board, but as we noted, the ‘bigger picture’ trend in EUR/JPY has been quite bullish, and traders would likely want to use that short-term weakness to position-in to longer-term bullish strategies.

The level that we pointed out around 120.85 had helped to set support after that ECB-inspired move-lower; after which EUR/JPY ran-up to set a new short-term swing-high at 124.09.

So – to put this in scope – after the European Central Bank extended their QE program, creating weakness in the Euro against most currencies, EUR/JPY merely set a higher-low which then led-in to another higher-high just a week later. This is indicative of a market being driven by a ‘bigger theme,’ and that’s the prospect of continued Yen-weakness as we move into 2017. This is also something that can make top-side continuation, particularly on a longer-term basis, quite attractive.

Current price action is attempting to dig-in support off of a short-term trend-line that can be found by connecting the election-night lows to the low on December 4th. Monday’s price action put in multiple tests of this trend-line and we saw the same this morning; each producing some element of bounce. But this may not be the ‘longer-term’ higher-low that bulls are likely looking for.

Instead, there are two potential levels that could serve such a function: The same price action swing that had shown-up around 120.85 that we looked at in our last article, and a bit deeper around the ‘major’ psychological level at around 120.00. Each of these could be interesting support inflections for longer-term bullish strategies.

 

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