The EURJPY cross pair benefits from the bid tone behind the Euro. The last couple of weeks saw the Euro appreciating, especially against the USD, with the recent price action looking like a melt-up.
The bid tone behind the EURUSD influenced the flows on other Euro pairs too. For example, EURAUD or EURGBP, they both ended up the previous week at the highs. So did the EURJPY, albeit the technical picture reveals a bearish break that took place before the current bounce.
No Surprises from the Japanese Inflation
The trading week in Japan started with Bank of Japan (BOJ) revealing the Core CPI YoY measure. It barely rose 0.1%, a tad higher than 0% last month. It reveals the struggles BOJ faces to push inflation towards the target.
BOJ fights deflationary pressures for over two decades now. It changed its monetary policy mandate in time, currently being involved in Yield Curve Control (YCC) via Qualitative and Quantitative Easing (QQE). Its ageing population prone to high savings rate made it difficult to stimulate consumption.
The coronavirus pandemic did not help either. Savings rate soared in Japan as well, as people are reluctant to spend at pre-pandemic levels.
EURJPY Rising Wedge Broke Lower
The EURJPY pair struggles at the highs, setting the stage for a possible sharp reversal, as all the conditions for a possible double top are in place. Moreover, on the way to its second attempt at the highs, the EURJPY price action formed a rising wedge – a toppish formation characterized by marginal higher highs and a series or higher lows.
Bearish traders wanting to take advantage of the possible double top may find the current retest of the wedge pattern as idea for entering the market. With a stop-loss order set just above the previous high, the risk-reward ratio until the psychological 120 level exceeds 1:4. For a safer way to trade this bearish setup, consider moving the stop-loss to break-even by the time the EURJPY pair reaches the 1:2 rr ratio level on its way to 120.