EURJPY may be due for a correction lower

EURJPY was rejected at key resistance level overnight as the ECB gave its strongest indication yet that it’s prepared to use unconventional instruments to prop up inflation. While the ECB didn’t announce any new measures this time around, the bank is clearly very open to the idea and another low inflation reading could force the bank’s hand.

Before the meeting, IMF Chief Lagarde implored the bank to immediately take action, with inflation in March rising a disappointing 0.5%. Draghi, however, brushed off this data, putting it down this year’s early Easter. (For a full rundown of last night’s ECB meeting see my colleague Kathleen Brooks’ report: Will the Easter Bunny bring QE to the ECB?).

Potential double-top in EURJPY

The euro took a bit hit on the back of Draghi’s comments, with EURUSD just holding above 1.3700 at the time of writing. Meanwhile, EURJPY was rejected by a long-term downward sloping trend line (see chart), which has created a potential double-top in price. With the fundamental supports crumbling under the euro and this recent technical weakness, EURJPY may be heading towards long-term trend line support and its 100-day SMA.

However, there is some concern that this potential EUR weakness will be weighed against possible JPY weakness, especially if the BoJ announces more stimulus measures. Also, if price breaks its long-term downward sloping trend line, it may negate the aforementioned bearish scenario. Yet, we think more stimulus from Tokyo may be a few months off, if at all, but ECB may ease at any time if we witness another weak inflation reading.

Source: FOREX.com