Looking at the EUR/JPY pair, it doesn’t take much imagination to see that we are in a downtrend. We have been climbing a bit as of late though, and it looks like the market is trying to hang in a channel. The channel of course is something worth paying attention to, but when you look a little bit deeper, you can see that we are forming a bit of a bearish flag. This of course is a very negative turn of events, and a bearish sign.
Bearish flag
EUR/JPY Chart
The bearish flag of course is a well-known negative technical pattern, and of course will attract a lot of attention by traders around the world. Ultimately, you can measure the pole of the flag for the target, and at this point on a break below the uptrend line that makes the bottom of the channel we can start to talk about the target. The target of course is the measurement of the pole, which means we could go as low as ¥115 underneath. With that being the case, a break down below this uptrend line allows for the market to go much lower, and of course the fact that we would be breaking through the bottom of the hammer from the Thursday session is also negativity.
Risk on/risk off
The Euro has drifted a bit lower over the longer-term, and of course this has a lot to do with risk appetite. After all, the ECB is talking about interest rate cuts, or at least loosening monetary policy. The risk to global growth of course is continuing to be a driver into the Japanese yen. The market drifting lower makes a lot of sense as we have geopolitical issues out there involving the United States and Iran, the European Union losing strength, and of course the trade wars. Ultimately, there are a lot of concerns about where we go next overall, and therefore buying into the Japanese yen makes quite a bit of sense.
The trade going forward
Breaking below the hammer from the Thursday session is a signal to go short of this pair. At that point, it becomes a longer-term trade that could find its way down to the ¥115 level. The ¥120 level underneath is going to be significant support as it is a large, round, psychologically significant figure. However, it’s very unlikely to hold based upon this type of negativity.
If we were to rally, it’s not until we break above the ¥123.50 level that buying is a possibility. At that point, the market could then go to the ¥125 level, which of course is a large, round, psychologically significant figure as well. Either way though, this is a negative trend and trends tend to last in the Forex markets for quite some time. Unless something drastically changes with the overall global appetite for risk, it’s hard to imagine that this pair is going to rally. Most certainly, the safer of the two trades would be to short this market.
