EURJPY: Double Top pushing the price lower


This past week, the EURJPY regained strong upside momentum again and surged more than 300 pips. However, the pair has failed to close above the June peak of 158 on the second attempt forming a double top. Since the start of this week, the currency pair experienced a pullback after the Euro extended the decline. As of this writing, EURJPY hovers near the 156-support area. Euro has come under pressure after the release of disappointing German IFO business climate and Eurozone PMI data.

Moving ahead, European Central Bank and Bank of Japan meetings are the main important events to watch for EURJPY traders this week. The ECB is expected to hike interest rates by 25 basis points on Thursday, amid the continuing struggle against soaring inflation rates in the Eurozone. The Bank of Japan (BOJ) in stark contrast to the ECB, is steadfastly maintaining ultra-low interest rates. The central bank is expected to hold interest rates steady at its tentative meeting on Friday.

Looking at the broader picture, it is important to note that this pair is very sensitive to risk appetite. So, traders should also pay close attention to sentiment indicators and other markets to get a sense of where risk appetite is heading. If risk-off flows carry on for the rest of the trading sessions, the safe-haven Japanese Yen might be able to take advantage and sustain a selloff for the pair.

Technically, the overall movement has remained bullish in the last couple of months. However, the double top would be focused on the 158 level, and the fact that we now have the Federal Reserve meeting on Wednesday, I think we’ve got a good possibility of a further pullback from here. A short-term rebound is not ruled out; the neckline of the formation at 156 is a crucial support. A break can lead to an extended down move towards 155.50. Below 155.50, 154.80 will act as an initial cushion, any break below this area will open doors to 154.10/00. On the flip side, a move beyond 158 would be essential to affirm the next leg of the uptrend.

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