More big moves could be in store for EUR/JPY as the European Central Bank (ECB) is expected to raise interest rates this week.
Let’s take a quick look to see why traders might jump in long EUR/JPY if the market goes down.
EUR/JPY 1-hour forex Planned by TV
What’s up in the world of forex! Today we take a look at the EUR/JPY currency pair, which made a strong upward movement last week after the bearish reaction in the Japanese yen triggered by the Bank of Japan.
Last Friday, the Bank of Japan disappointed the yen bulls by setting expectations that the monetary policy review was likely to take more than a year, dashing hopes that policy normalization (i.e. raising interest rates) would happen anytime soon.
EUR/JPY surged higher during the event, breaching the previous swing high around 148.60 like a hot knife through butter, and almost testing the 152.00 handle before running out of steam.
Looking ahead, we have the next big potential catalyst in the form of the ECB’s latest monetary policy decision, which we covered in our latest event guide today. Read this before you start your own trading if playing in the EUR is your thing this week.
For us, the level of uncertainty as to whether we will see a 25 pips rally or a 50 pips rally in a second is very high, so we are looking to remain conservative on EUR/JPY until we get more information after the event.
But with odds high that the ECB will remain aggressive on monetary policy while the Bank of Japan is likely to keep interest rates at the lowest levels among major currencies, we are bullish on the pair, especially on any pullback this week.
From a technical point of view, the EUR/JPY is currently taking a hit, most likely due to traders taking profits or reducing risk before the event. We also see a bit of a risk off sentiment starting to show today, likely due to worrying economic updates from the US.
If EUR/JPY continues to penetrate deeper into the Fibonacci area and retests the bullish SMA/breaks the previous swing high (around 148.60), we will be on the lookout for bullish reversal patterns before taking a potential long position, as long as the ECB remains tight Concerning the fight against inflation and does not indicate a slowdown in the tightening in the future.
If the ECB signals a potential pause ahead, it could trigger a massive round of profit-taking from the EUR/JPY bulls, who have been riding a solid trend higher throughout April since the pair bottomed in mid-March around a key psychological handle. 140.00.
Overall, EUR/JPY looks like a promising candidate to attract some buyers on a pullback, but as always, it is important that you carefully consider your capital conditions, trading strategy, and risk tolerance before making any trades. Happy trading!
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