The euro currency is starting to look increasingly bullish against the Japanese yen, as a diversion of near-term fundamentals, improving technicals, and increased risk-on sentiment bode-well for the EURJPY pair.
Yesterday, the Bank of Japan noted that they may slash their inflation targets at the next central bank policy meeting. The BOJ have repeatedly felt short of their CPI target of 2 percent, as they lose the battle to increase inflation.
Additionally, the European Union just announced that they have secured 50 million additional Pfizer/BioNTech doses, which prompted increased optimism towards a recovery in the eurozone, and renewed demand for the single currency.
With inflation expectations in the Japanese economy dwindling and the Eurozone’s growth prospects look up a near-term fundamental divergence has occurred, which could present a trading opportunity for the EURJPY pair.
As demand for the single currency grew earlier this week on the bullish vaccine news the EURJPY pair started to firm above the 130.00 level, and now looks set to breakout towards fresh 2021 trading high.
Potentially, the European Central Bank policy meeting could be the next bullish catalyst for the EURJPY pair. The ECB may not yet be too concerned about the recent appreciation in the euro against the US dollar and the yen currencies.
It is unlikely that the ECB may try to jawbone the single currency lower during this week’s policy meeting as the breakout has just started after several weeks of euro weakness. The ECB are likely to focus on near-term growth and inflationary price prospects this week.
Looking at retail sentiment there is a large one-way bearish skew towards the EURJPY pair right now. Which could imply that the ongoing upside breakout in the EURJP pair has legs. The ActivTrader Market Sentiment tool shows that some 79 percent of traders are bearish, which bodes well for further strong upside gains.
Historical data has shown that fading one-sentiment skews amongst the retail crowd has proved to be lucrative. Overall, expect further gains in the EURJPY pair look likely while sentiment remains this one-sided.
EURJPY Short-Term Technical Analysis
The four-hour time frame shows that a breakout from a large, inverted head and shoulders pattern is currently underway, with the target of the bullish price pattern is located close to the 1.3250 resistance level.
EURJPY traders should watch out for further gains while the price trades above the 1.3000 level, which is the neckline of the pattern.
It is noteworthy that bearish MACD price divergence has formed on the four-hour time frame. The negative divergence extends down towards the 129.00 price area. This could present a significant buying opportunity if a pullback to 129.00 occurs.
See real-time quotes provided by our partner.
EURJPY Medium-Term Technical Analysis
Looking at the daily time chart shows that the EURJPY pair has broken free from the Ichimoku cloud and looks set to challenge towards the 1.3600 level, which is the 2018 trading high.
A large invalidate a large head and shoulders pattern has been activated following the recent break above the 1.2700 level.
If the pattern plays out to its full upside potential then a huge rally towards the 1.4000 level could happen over the medium-term horizon.
See real-time quotes provided by our partner.