Euro-Yen Consolidation About to End?

Key Points:

• 20EMA and 60EMA cross to the downside.

• Parabolic SAR indicating further bearishness ahead.

• EURJPY downside risks dominate.

The past few months have been rough for the EURJPY as the pair has continued to decline in the face of further easing in Europe and a resolutely strong Japanese Yen. The bulls would have breathed a sigh of relief over the past few weeks as the pair appears to have moderated and entered a sideways consolidation phase. However, despite the period of moderation, the pair looks set to recommence its bearish trend in the days ahead.

Currently, price action is trapped within a tightening wedge that has the potential to see a sharp breakout in the coming days. Currently, the technical indicators largely favour the downside with the Parabolic SAR indicating further bearish moves ahead. In addition, the RSI Oscillator has now managed to claw its way back into neutral territory but still retains a more medium term bearish trend. Also, the 20 EMA has just crossed below the 60EMA which adds further fuel to the bearish contention.

Fundamentally, the Euro has also been under pressure over the past few weeks as the NBB Belgian Business Climate figures disappointed at -3.1 whilst the Eurozone Advance Consumer Confidence data also contracted at -9.0. Subsequently, despite some of the broader macroeconomic indicators showing some gains, there is an increasing concern that the Brexit has damaged EU consumer confidence and that this could flow through the consumption channel and require further ECB action down the track.

In contrast, despite successive rounds of easing, the Japanese Yen is still being viewed as a safe haven currency whilst the global economic tremors from the Brexit work themselves out. Fundamentally, the Yen should be relatively weak but ongoing negative Dollar swings have seen a significant amount of capital flow into the currency.

Ultimately, there are plenty of technical and fundamental reasons to see the EURJPY reach for a lower valuation in the days ahead. Subsequently, keep a close watch on the bottom of the current wedge as a breach of this level could see the pair plummet.