Analys från DailyFX
EUR/JPY Technical Analysis: Megaphone Pattern Shows Ahead of ECB
Talking Points:
– EUR/JPY remains strong around the psychological level of 130.00 ahead of tomorrow’s ECB rate decision.
– The Euro’s bullish run of 2017 will face its most critical test tomorrow as investors go into the rate decision looking for some element of clarity around the ECB’s future plans around stimulus. If the ECB announces a plan or strategy for stimulus exit, Euro strength will likely continue as investors attempt to get in-front of any potential policy tightening that may follow.
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In our last article, we looked at the bullish structure in EUR/JPY as the pair continued to find buyers around the key Fibonacci level of 128.52. As we had shared, this is the 38.2% retracement of the ‘Abenomics’ move in the pair, and after re-emerging as a key level in EUR/JPY’s price action in June of this year, this price had continued to elicit support. But this hasn’t been an entirely one-sided story: After breaking above 130.00 in July, EUR/JPY has had difficulty mustering fresh buyers when testing new highs, leading to about a month’s worth of digestion as a megaphone pattern has begun to show.
EUR/JPY Daily: Range Expansion throughout August Leads to Megaphone Pattern
Chart prepared by James Stanley
Megaphone patterns are rather unique, and they can show up near the top or bottom of a move as traders continue to test either side of a range ahead of a big break. Unfortunately, this includes zero predictive power as to which direction the break may actually take place; and the reason that these patterns may show near tops or bottoms likely has to do with the bigger picture sentiment or trend showing at the time.
The key driver for the Euro’s bullish move in 2017 has been expectations around the European Central Bank. As we came into the year, the ECB was in the midst of a massive stimulus program that was set to run all the way to December of 2017. But as we moved deeper into the year, and as growth and inflation data in the Euro-Zone continued to show signs of improvement, expectations began to build that the ECB would start to walk away from their outsized stimulus outlay after the current program expires in December.
Tomorrow brings an ECB meeting in which the bank will provide fresh projections, and this will be the last set of forecasts that we receive before that December meeting around when the current stimulus program will be wrapping up. This has led many to believe that we may get that next piece of information as to what or how the ECB wants to handle the matter moving-forward, and this has kept the single currency strong as buyers attempt to front-run a potential stimulus exit from the ECB. But is this something that the ECB wants? And further – if they do actually announce a stimulus exit at tomorrow’s meeting and if Euro-strength continues, what can they possibly do quell the rampant demand that has continued to show?
Regardless of which way tomorrow’s rate decision drives prices, the current megaphone pattern can be used to direct near-term positioning. A top-side break of resistance around 131.70 is bullish, while a bottom-side break of prior support around 127.50 is bearish. After a breach of either of these levels, traders can then direct their focus to looking for lower-high resistance around 128.52 for short-side continuation approaches, while a bullish break opens the door for higher-low support around 130.50-131.00.
EUR/JPY Four-Hour: Megaphone Break Opens Door for Higher-Low (blue) or Lower-High (red)
Chart prepared by James Stanley
— Written by James Stanley, Strategist for DailyFX.com
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What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
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EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
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Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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