The EURJPY pair after setting an 8-year high in October has moved into a descending channel. Last Friday the price rebounded from the lower boundary of the channel, and now it’s trying to break through the upper boundary. The results of today's trading session are extremely important. Either we will see confirmation of exit upwards from the channel, or the price will fall lower again, and we can expect further movement to the lower boundary.
The main trigger for the euro will be the outcome of the ECB meeting on Thursday, December 15. Market participants expect a rate hike by 0.5% to 2.5%. However, since this time the ECB will make its decision on the next day after the Fed meeting (usually European officials meet before American ones, but December is an exception), strong euro movements may start as early as Wednesday.
Most likely, both the rate decision and the rhetoric of ECB representatives will be in line with their colleagues from the Fed. Thus, a looser European monetary policy outlook can be expected. EU countries are hardly interested in excessive tightening, especially given their huge borrowing needs in the debt market. Otherwise, bond payments will place an exceedingly heavy burden on the European countries' budgets.
The Bank of Japan will be the last of the lead regulators of the global financial system to hold its meeting. The meeting takes place on December 20. No changes are expected until the end of the governor Haruhiko Kuroda term in office next spring. The governor made an unequivocal comment stating the bank adherence to the ultra-loose monetary policy within the current situation. The new governor of the Bank of Japan may be more decisive, but we won’t know it in the foreseeable future. In the meantime, the EURJPY dynamics will be determined primarily by the European currency.
In case the EURJPY fixes above the upper boundary of the channel, a further rise to 145.6 is more likely. In case of return below this line, the dynamics will be inclined towards the downside to 141.5.
The following trade strategies may be suggested:
1) Buy EURJPY as it fixes above 144. Take profit – 145,6. Stop loss – 143,5.
2) Sell EURJPY as it goes below 143.5. Take profit – 141,5. Stop loss – 144.
Also, traders, at their discretion, can use the Trailing stop instead of the fixed Stop loss.