EURJPY bounces from the down trendline

‘Sell in May and go away’. This is a saying that still applies to stocks, even despite last week’s rise. It definitely  applies to the Euro, which recently headed south and is now very close to the monthly lows. In the case of the Euro, the problem lies in the potential trade wars between the EU and the US. The European Union is next in the queue (after China) to be targeted by the revisionist trade approach taken by Trump’s administration. What is more, we also have the case of Iran, where the EU is not as hostile towards the Persians as the Americans. This creates additional pressure from Washington, with more threats and doubts.

EURJPY H4

 

These are the fundamentals from the geopolitical point of view, so what about the macro economy? In this context, the Euro Zone can be described as a snail. The economy is not contracting but neither is it doing particularly well. Rather it is vegetating, which is not very promising if we think about the forthcoming crisis that will happen at some point as part of the normal cycle. This analysis is looking at the EURJPY, so what about the second currency in the pair, the JPY? Firstly, the Yen has recently been gaining traction thanks to the risk-off mode (as it is seen as a safe haven currency). In addition, Japan released its GDP figures today, which surprisingly denied any contraction and showed quite an impressive rise (by Japanese standards). To summarize, the fundamentals are, in theory, negative for the EURJPY.

This is confirmed by the technical analysis. However there is a bit of light in the tunnel and it is not from the train. The EURJPY is still in a downwards trend (black) and below the crucial horizontal resistance (yellow), but the price has made an inverse head and shoulders pattern (pink), which may indicate the start of a reversal. Buyers have already managed to break the green neckline of this formation, which is very optimistic. I would be rather cautious here and before buying, make sure that the price has broken through the black down trendline. Only if the EURJPY is above these dynamic resistances would it be an interesting bullish opportunity.

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