EUR/JPY Forecast After It Formed a Hammer Pattern

After the positive Japanese economic data, the EUR/JPY price formed a hammer pattern on Friday morning. It rose to a high of 136.90, which was the highest point since Thursday. Focus now shifts to several important economic data from Europe.

Japan published positive household spending data on Friday morning. According to the statistics agency, household spending rose from -0.5% in May to 3.5% in June. This was the biggest increase in months. On a month-on-month basis, spending rose from -1.9% to 1.5% even as inflation continued rising.

Additional data revealed that Japan’s overtime pay rose from 5.5% to 5.80%, while the overall wage income of employees rose from 1.0% to 2.2%. These numbers show that the Japanese economy is doing relatively well.

The next key data to watch will be French exports and imports numbers and non-farm payrolls data. While France is an important economy in Europe, these numbers don’t have a major impact on the euro unless they are extremely positive or negative.

The EUR/JPY has also reacted to the divergence between the BoJ and the European Central Bank. While the ECB has embraced a more hawkish tone, the BoJ has vowed to leave interest rates unchanged.

EUR/JPY forecast

The four-hour chart shows that the EUR to JPY exchange rate has recently been in a strong bearish trend. This trend eased on Friday morning when it formed a hammer pattern. In price action analysis, this pattern is usually extremely bullish. 

The pair remains below the chin of the double-top pattern that formed in August. This chin is at 137.87.  It remains below the 25-day and 50-day moving averages.

Therefore, the pair will likely continue rising as bulls target the important resistance point at 137.87. A drop below the lower side of the hammer pattern at 133.42 will imply that there are more sellers left in the market. If this happens, the pair will likely drop and retest the support at 132.31, followed by 130.71.