The technicals on the EURJPY pair are developing into an interesting setup, a potentially attractive shorting opportunity to target a fall toward the 126.00 and 124.00 levels (the current spot price is around 129.64).

The setup that we’ll describe is primarily based on the technicals. On the fundamental side, a weakening euro hammered down by an ultra-dovish ECB would likely be the main driver behind such a drop in the EURJPY exchange rate. Furthermore, a deterioration in risk sentiment can only add fuel to the fire and accelerate any EURJPY downside moves that may already be underway.

For when and how all may unfold, we turn to the details of the technical picture below.

There are three key technical zones to remember when it comes to the EURJPY technicals at the moment. Those are:

• The 200-day moving average (red) that concurs with the support zone around 129.00 - 129.30, off which EURJPY is currently rebounding 
• The resistance around the prior highs (daily chart) at 130.50
• The confluence of the 55-day and 100-day moving averages (blue and orange), which concur with the resistance of the falling trendline (at 131.00 - 131.20 area)

With these three technical zones in mind, we can get a much clearer picture of what is happening with EURJPY and where it may be going next.

For example, we can see that it has hit support in the 129.00 - 129.30 zone, which could open up notable downside potential if broken. However, for the time being, the support doesn’t look like breaking (at least today), and the price is instead currently rebounding. This most recent bounce suggests EURJPY can move further higher and test the 130.50 resistance zone that is noted above.

Now that we’ve identified the key technical zones to monitor, let’s look at the main factors that are influencing EURJPY on the daily chart.

The chart looks clearly bearish (especially after that big drop in mid-June). Namely, it’s a bearish head and shoulders pattern that’s waiting to be triggered by a downside breakout of its neckline (see chart below). And it would be triggered with a breakout of the same 129.00 - 129.30 support zone noted earlier.

Looking at potential targets, the projections based on the head and shoulders pattern give the 126.00 and 124.00 zones as the likely levels that EURJPY would reach under this bearish breakout scenario.

126.00 is 61.8% projection of the head of the pattern, while 124.00 is the full (100% projection), and thus the main target of the head and shoulders formation. Moreover, the weekly chart shows that the 200-week MA is colocated at 126.00, while the 100-week MA is at 124.00. This is making the levels even more significant, and it is why we are laying out both as the potential targets for this trade.

Entry: 

• Look to join a short move on a bearish breakout below the 129.00 - 129.30 support zone of the neckline

Stop: 

• Aim to place the stop above the most recent swing high;
• currently, that is 130.50, but it could be lower by the time the neckline breaks.

Targets:

• 1st - 126.00
• 2nd - 124.00

• Long USDCHF from 0.9050 (open and in progress to target, currently 180+ pips in profit); trade idea sent on June 18 and triggered on August 5