The EURJPY pair, unlike the USDJPY, has only recently approached the levels of the previous local highs. The June high of 144.2 has been overcome yesterday. Now the price is trying to remain flat. If it succeeds, there will be a lot of opportunities for the price to move up.
The driving force for the euro growth was a significant change in the ECB's interest rate decision at Sept. 8 meeting. The ECB officials, who had previously been very cautious about the tightening of monetary policy, recognized the need for interest rate hike as a way of curbing record inflation. According to the new forecast, the key rate will be raised from the current level of 1.25% at the next 2-4 meetings.
It makes eurobonds attractive to investors again. Although, rising interest rates will have a negative impact on the debts of European countries (especially on Southern Europe). However, at the moment, the ECB prioritizes the fight against inflation, and this will maintain euro stability at least within the couple of months. Given cold weather and an escalation in the energy crisis, the European currency needs it.
The Bank of Japan continues to keep its monetary policy ultra-loose, pushing EURJPY to new highs. Despite the remarks made by Japanese officials concerning the need in handling 'rapid, one-sided' changes of the national currency, it delayed the weakening of yen for no more than a day. Verbal interventions are unable to prevent the fall of yen without taking real actions.
As the level of 144.2 has been overcome, it is now being tested from top to bottom. Given the strong overbought level of the RSI indicator, the correction may lower EURJPY even more, to 142.3. Further, it is very likely to move up again. The medium-term target will be a high of 149.75 seen in December 2014.
The following trading strategy options can be suggested:
1) Buy EURJPY at the current price. Take profit – 149. Stop loss – 142,3.
2) Buy EURJPY when it is down to the level of 142.3. Take profit 1 – 145,5. Take profit 2 – 149. Stop loss – 139,5.
Traders can also use Trailing stop instead of a fixed Stop-loss at their disposal.
This content is for informational purposes only and is not intended to be investing advice.