The EURJPY trades close to the 122 level, and the selling pressure will likely persist all the way to the 120 and maybe even beyond. The ECB tomorrow is expected to keep the interest rate unchanged, but it is forced to strengthen the dovish bias in the face of COVID-19 challenges for the Eurozone economies.
The pair is in a downward trend. Ever since it reached the 127 level, the JPY started to put pressure on the Euro. Despite buyers stepping in, the pair declined gradually up to the 125 level. From that moment on, as the USDJPY began to fall too, the declining pace accelerated consistently.
A big problem for the ECB tomorrow is how it will communicate to markets its decision to ease only in December. The market does not expect any important announcement tomorrow, but the central bank may be forced to act sooner due to the downside risks materializing.
The last ECB meeting ended with a pretty hawkish signal, and the Euro moved higher. It took one day and one blog post from Phillip Lane to explain what the ECB intended to say.
Hopefully, this time around the ECB will have a clearer message. If it decides to expand the QE program and announces that tomorrow, the EURJPY has room to move much lower than the current levels.
The EURJPY cross formed a triple top above the 126.50 area just about the time the EURUSD reached the 1.20. When the ECB intervened, it referred specifically to the EURUSD exchange rate. However, the verbal intervention affected all Euro pairs, as none was able to make a new high after that point.
Bears may want to sell the EURJPY at market with a stop at the opposite side of the falling channel and target a move below the 120. In doing so, they should aim for a risk-reward ratio of at least 1:2.
