During yesterday’s session, EURJPY dipped below wedge support for the first time since its inception in April. This move came on the back of dovish comments by Mario Draghi regarding the need for future stimulus.
But this move shouldn’t have been a complete surprise. If you saw last weekend’s commentary, a close below wedge support was something that was on our radar. In fact this pattern has been on our radar for several weeks now.
So the break itself was not shocking, but here is where things get interesting. We all know that EURJPY shares a relationship with EURUSD in that the base currency is the same, thus a break on one pair tends to lead to a break on the other.
Of course this is not always the case, but it does hold true more often than not, especially when the break is a significant one. Yesterday’s move below wedge support for EURJPY certainly fits that description.
As for EURUSD, the single currency just happens to be trading below a seven-month support level that we have been tracking for several months. We all know of the downside potential should this level fail.
Needless to say this would be a big break for the Euro if in fact the pair closes the week below support.
But it doesn’t stop there. We can see similar breaks on other Euro-based currency pairs including EURGBP, EURAUD and even EURCAD.
Here is a look at the EURGBP break that was profiled on Monday.
In the case of EURAUD, the pair has slipped below a six-month trend line that was tested on multiple occasions since its inception in April.
Last but not least is EURCAD, a pair that has been extremely choppy over the past two months but recently fell below the 1.4600 handle.
So what does all of this mean?
It means that we could have multiple reasons to target Euro weakness going into next week. I use “could” on purpose because we don’t yet have a confirmed break on EURUSD. If the bears do indeed crack that support level (see first chart), it would likely attract a lot of attention from sellers in the days and weeks ahead.
It’s important to note that all of the breaks shown in the charts above were the result of Euro weakness. A look at a single pairing never tells the whole story as to which currency is weak and which is strong, however breaks across multiple pairs where the Euro is the base currency is telling.
I don’t often look across currency pairs for this kind of confirmation, however when it is this obvious it’s hard to ignore and can prove useful when determining the odds of a potential move.
Note: Additional details of the other currency pairs mentioned above will be shared in the upcoming weekend forecast.
Summary for EURJPY: Watch for bearish price action next week on a retest of former wedge support as new resistance. Key support comes in at 133.30, 131.50 and 129. Alternatively, a daily close back above former wedge support would negate the bearish bias and expose wedge resistance.