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On January 23 I discussed how I believed the EURJPY to be topping out near 136.60. Eight trading days later, the pair carved a high of 137.50, a level that’s nearly 500 pips above today’s price.
Then on February 8, the Euro cross fell below rising wedge support at 134.00. Less than 24 hours after that commentary we got our retest of the 134.00 handle as new resistance.
If that wasn’t enough to convince you that the pair is technically sound, yesterday’s session bounced from the 131.40 area. It’s arguably the most well-defined level within view and one that I’ve had on my chart for several months.
The bid that developed just above 131.40 was so strong that it turned the EURJPY positive during yesterday’s session even after a 180 pip intraday plunge.
However, despite Wednesday’s late session push, buyers have failed to extend the price above Wednesday’s high at 133.38.
Moreover, the USDJPY is plummeting. I commented on the importance of the 107.30/50 area on Tuesday. It’s the location of a trend line that extends from the September 2012 low and one that if broken could spell trouble for the risk-sensitive pair.
Yesterday’s close not only cleared the trend line at 107.50, but it also took out the 2017 low at 107.30.
What does this have to do with the EURJPY?
Quite a lot, in fact. The USDJPY is considered the benchmark for the Japanese yen. A drop in the USDJPY, especially one this severe, signals a stronger yen which tends to weigh on pairs like the EURJPY, GBPJPY, etc.
A quick comparison of yesterday’s rally in the EURUSD to the same period in the EURJPY tells you all you need to know.
That USDJPY breakdown also indicates that yesterday’s bullish EURJPY candle may not garner much support from bulls. And if the EURJPY does move higher from 133.00, I would expect to see an influx of selling pressure at 134.50.
If the pair fails to retest 134.50 over the coming sessions, a daily close (New York 5 pm EST) below 131.40 would trigger the next leg lower toward 128.30.
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