One of the most interesting trading setups in March 2021 came from the EUR/JPY market. The pair formed a rising wedge pattern that broke lower. Moreover, the market retested the lower edge before diving some more. Also, a bearish divergence with the RSI existed at the time the wedge broke lower.
However, a rising wedge triggers a bearish move much stronger than the one seen on the chart below. Hence, the inability of price to reach lower levels means that the path of least resistance remains the upside.
The rise in the U.S. real rates has put pressure on the JPY and the CHF pairs. The two currencies are viewed as safe-haven currencies, and the rise in the long-term yields is interpreted as rising optimism in the economic recovery.
As such, investors flee the safe-haven protection of the JPY and the CHF pairs and accept taking more risk. The rise in the EUR/JPY pair is even more impressive because all this time, the euro traded with a bearish tone.
The pair looks poised to make a new high above the 130 level as it failed to reach minimum 50% retracement of the entire wedge formation. Bulls may want to remain on the long side with a stop at the lows and target a 1:2 risk-reward ratio.
