EUR/JPY rallies on Monday, but capped at 128.00 level by medium-term downtrend

  • EUR/JPY rallied 0.4% on Monday but was capped at 128.00 by a key down-trend.
  • The pair was supported by an upturn in broad risk appetite on more positive Covid-19 news.
  • But technicians note that EUR/JPY has formed a descending triangle in recent sessions, which could signal a bearish breakout.

EUR/JPY rallied on Monday to test a key down-trend that has been capping the price action going all the way back to the start of November. The downtrend has been providing resistance close to the 128.00 level and has been capping the price action so far on the session. On the day, the pair is up 0.4%.

EUR/JPY has been suppressed in recent sessions by concerns about the implications that the emergence of Omicron will have on the global economic outlook. This compounded concerns about the short-term economic outlook for the Eurozone, which is already suffering from an unprecedented surge in Covid-19 (delta) infections which has seen countries move to reimpose various lockdown/health restrictions.

But the tone of the news since the weekend has been more optimistic on Omicron. As more data/anecdotal evidence comes from South Africa, momentum is building behind the idea that the new variant is much milder than past variants such as delta. Over the weekend, top US infectious disease export Anthony Fauci said on CNN that it doesn’t look like Omicron has a “great degree of severity”.  

The shift in the tone of news has helped support a broad-based improvement in risk appetite on Monday that is helping global equity and commodity markets and risk-sensitive currencies. By the same token, demand for safe-haven currencies like the yen has been undermined, hence why EUR/JPY has been able to recover.

Should the tone of news continue to improve, the pair might be able to break to the north of its recent downtrend, which could open the door to a run towards key resistance in the 128.80 area and then above that in the 129.50 area. However, technicians would note that EUR/JPY has formed a descending triangle in recent sessions, with support coming in in the 127.50 area. These patterns are often a sign that a bearish break is upcoming. A break below the key 127.50 area could open the door to an extension of losses all the way to the next significant area of support around 125.10.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex News

Latest Forex News

Editors’ Picks

EUR/USD struggles to rebound, holds near 1.1150 after US data

EUR/USD trades around 1.1150 in the early American session on Friday as investors assess the latest inflation data from the US. According to the US Bureau of Economic Analysis, Core PCE Price Index rose to 4.9% on a yearly basis in December from 4.7% in November, surpassing the market expectation of 4.8%. 


GBP/USD clings to small gains above 1.3400 on mixed US data

GBP/USD posts modest daily gains slightly above 1.3400 on Friday as the dollar rally loses steam. The data from the US showed that the core PCE inflation edged higher to 4.9% in December. On a negative note, Personal Spending contracted by 0.6% on a monthly basis.


Gold recovers modestly after US data, stays below $1,800

Gold managed to stage a rebound from the multi-week low it set below $1,780 but continues to trade deep in the red near $1,790. The benchmark 10-year US Treasury bond yield is rising more than 1% on the day after US data, limiting XAU/USD's recovery.

Gold News

Bitcoin Weekly Forecast: Federal Reserve cannot tame BTC’s uptrend

Bitcoin has experienced some significant losses over the past few weeks, with a more dramatic drop occurring this week after the Fed's decision was announced. As losses have extended and BTC has entered into the $30,000 zone, concerns regarding Bitcoin being in a bear market have increased.

Read more

Apple share price set to rise after another record quarter

With the Nasdaq closing at its lowest level in seven months yesterday, the Apple share price has also found itself on the end of the recent weakness in tech shares, down over 12% from its record highs in early January.

Read more