EUR/JPY bounces but still carries significant downside risk

<p>EUR/JPY bounced modestly on Thursday afternoon as global equity markets took a breather and rebounded off their recent lows. This alleviated some pressure from EUR/JPY […]</p>

EUR/JPY bounced modestly on Thursday afternoon as global equity markets took a breather and rebounded off their recent lows. This alleviated some pressure from EUR/JPY as the safe haven yen eased off its latest highs.

Despite Thursday’s rise for EUR/JPY, the currency pair continues to trade within a tight consolidation just off last week’s eight-month low of 126.77. This consolidation has currently formed an inverted pennant pattern, which is generally seen as a potentially bearish chart formation.

The pennant pattern began to form after price action in the past week, during the first trading week of the New Year, plunged below a major down trend channel that extends back to last June’s 141.00-area high. Since that high, EUR/JPY has fallen steadily within this channel, forming progressively lower lows and lower highs. Last week’s breakdown below the channel signifies an acceleration, or intensification, of the bearish momentum.

Having consolidated within the inverted pennant pattern under this descending trend channel, EUR/JPY continues to display a significant bearish bias. This should especially be the case if further volatility in the global equity markets continues to prompt safe haven flows towards the Japanese yen.

With major resistance to the upside continuing to reside around the recently broken 130.00 level, any breakdown below the current pennant pattern should target key support around the important 126.00 level, which was last approached to the downside last April. Any further bearish momentum could then begin to target the 123.00 support level.

EUR/JPY Daily Chart

 

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.