Following a retracement from its high, we’re keeping a close on EUR/JPY and resumption of its bullish trend.
We can see on the daily chart that, since breaking the bearish trendline from the 137.51 high, a change of primary trend has been confirmed with a break above 130.35.
The rally from 124.62 has come in three distinct waves which, if classic Elliott Wave theory (EWT) is to be believed, there could be more to come. The leg between the 124.62 low to 130.35 high retraced approximately 61.8% of its move before bursting higher. As this happed after a steep decline, the 126.64 low could be marked as the end of a ‘wave 2’ correction and we’re now in wave ‘3’ of a five wave move higher. Still, as we’re not advocates of EWT we’ll let time tell but we see the potential for further upside looking at the daily structure alone.
Since printing a small bearish hammer at the upper Keltner band, a shallow retracement has taken place. With a bullish structure in place and 130.35 support nearby, we’re looking for evidence of a basing pattern or for bullish momentum to return. The velocity of the trend suggests a break above 132 could be easily achieved to target the 135 (and beyond if EWT gets its way).
Still, this also assumes we don’t see a sudden change in market sentiment. The Japanese yen is the weakest major this month thanks to a life in investor sprits. If we’re to see this change (as it frequently does) then it may cap upside or see a deeper pullback on EUR/JPY. And if US data is to outperform European data, it’ll add another burden to our upside outlook as EUR will come under pressure. But as things stand now, our money would be on a higher EUR/JPY.