EURJPY Faces Dynamic Resistance – Back to 120 More Likely

Summary:

EURJPY faces resistance at confluence area. Looking to short the pair on a move lower. The neckline of the inversed head and shoulders helps bears.

The EURJPY pairs traded relatively quiet lately. When compared with the USD pairs, the crosses enjoyed tight ranges, visible on peers like EURGBP or EURAUD too.

However, the strength seen in the EURUSD major put so far, a strong bid behind the Euro crosses. Naturally, the EURJPY benefited from it and now trades above 124.

Nothing Derails the Euro

The Euro trades with a bullish tone ever since the EU Summit ended. The decision to back the EU Recovery Plan was celebrated by the markets.

Viewed as revolutionary and a sign of common fiscal policy in the European Union, the decision turned investors’ attention to the Euro.

Not all Euro pairs advanced as the EURUSD did, but all had a bid tone on each and every dip. The EURJPY cross, for instance, struggles to make a new high when compared with the June 2020 ECB meeting high. But at the same time, even if it succeeds, it does so against dynamic resistance. The 120 pivotal level awaits.

EURJPY Technical Picture

The pair forms an inversed head and shoulders pattern – a bullish pattern. However, before anything, it needs to further consolidate on the right shoulder.

At this point, it meets dynamic resistance offered by the inversed head and shoulders neckline. Typically, the two shoulders present many similarities, and this is the second time the price tries at the neckline, just like in the left shoulder’s price action. A retracement, therefore, should be in the cards.

Another bearish sign is the RSI divergence formed against dynamic resistance. Basically, it shows the price meeting resistance at a confluence area – difficult to break, considering all the aspects.

To trade the setup, wait for the price to move back to 123.20 before going short. Next, sell with a stop-loss at the neckline. Finally, target the projected neckline for a nice risk-reward ratio. Moreover, aggressive traders may want to trail the stop to the 120 level as the round number still attracts the price.