The EURJPY pair bounced higher right after it completed a triple top formation around the 127 level. A triple top is a tricky pattern, as many traders view it as the start of an ascending triangle rather than the beginning of a reversal pattern. However, now that the price reached the measured move, the bias is that the recent bounce is just that – a bounce.
This week is all about the HICP data in the Euro area. Two days from now, right ahead of the NFP release in the United States, we will see the core inflation in the Euro area for the month of September.
The bias is that the core inflation data will slip below the 0.4% registered last month. If that is the case, the ECB cannot and will not remain indifferent to such a drop and will likely act in the couple of meetings it has until the end of the year.
On Tuesday, the German preliminary CPI came out worse than expected at -0.2% on -0.1%. The French and Italian CPI’s revealed the same trend.
It means that the risks are tilted to the downside when it comes to the overall inflation data to be released next Friday. For traders ready to act on the weakening inflation front, shorting the Euro is the logic game in town.
The EURJPY evolved in a rising channel since the pandemic hit the Western world in March. A clear break below the lower edge of the channel opens the gates to the channels measured move. Also, it means that the EURJPY drop will exceed the 120 round number, offering a solid risk-reward ratio for courageous bears.
Bears would like to wait until the EURJPY breaks below the 122.30 level. Such a break targets 119 and below, while the invalidation sits at 124.
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