EURJPY Primed For Lift-Off

Technical Bias: Bullish   

Key Takeaways

• Euro managed to gain bids against the Japanese yen and broke an important barrier to trade towards the 138.00 level.
• Possible inverse head and shoulder pattern forming on the daily timeframe.
• EURJPY support seen at 137.50 and resistance ahead at 138.25.

The Euro climbed against the Japanese yen yesterday, as the latter one fell sharply against most major currencies. 

Technical Analysis

There was a critical bullish trend line on the daily timeframe for the EURJPY pair, which was breached yesterday. Currently, the pair is trading around the 38.2% Fibonacci retracement level of the last drop from the 142.37 high to 135.71 low. The most important thing to note that the mentioned fib level also coincides with the 100-day simple moving average (SMA). So, there is a chance that the pair might fail and correct lower from the current levels. In that situation, the broken trend line might come into play, and could act as a support in the near term. However, that cannot be seen as a bearish sign, as there is a high probability that the pair is heading towards the 50% fib retracement level in the short term, and it might even not correct lower from here.

On the upside, the 50% fib retracement level is at 139.04, followed by the 200-day SMA. Any further gains might take the pair towards the 61.8% fib retracement level.

Euro Zone Services PMI

The Euro-zone Services Purchasing Managers' Index (PMI) will be released by the Markit later during the London session. The forecast is of no change, and the Euro zone services PMI is expected to register a reading of 53.5. If the outcome beats the forecast, then the Euro might continue trading higher not only against the Japanese yen, but also against the US dollar.

Overall, buying dips is a good option as long as the EURJPY pair is trading above the 50-day SMA.