The EURJPY pair dropped from 127 area to 122 on the back of a mix of technical and fundamental factors. On the technical side, the pair formed a triple top difficult to ignore by technical traders. On the fundamental side, Shinzo Abe’s resignation and the change in leadership in Japan contributed to a stronger JPY to.
Moving forward, the fundamentals are likely to continue to weigh on the EURJPY cross. However, this time the ECB is likely to trigger the next leg lower in the EURJPY pair.
While not on the economic calendar (yet), the ECB Watchers conference (yes, such a thing does exist!) is supposed to bring much volatility on the Euro. Despite being a Non-Farm Payrolls day, the Euro traders should be aware that the Eurostat will release the HICP inflation data for September at the ECB Watchers conference.
Why is that important? The consensus is that inflation will come unchanged at 0.4%, just like in August. But the risk is that core inflation will move to the zero level or even below, albeit temporary.
If that is the case, Lagarde will have a hard time at the next press conference explaining markets how did the ECB view the drop in core inflation as temporary. She will have the chance to practice next week as it testifies in front of the European Parliament.
The technical picture looks bleak for the EURJPY. A horizontal consolidation forms right when the price reached the triple top’s measured move.
Such consolidation typically forms as a continuation pattern, at the end of a bearish flag. This one, on its own, has a measured move pointing close to the 120 area – the target for shorts wanted to get involved.
To do so, bears would want to sell at market with a stop at 124. As for the target, a move below 120 is the minimum to expect, with 118 and below more realistic.
