The EURJPY cross pair trades with a bearish tone as it broke below the 122 mark. After a double top formation at 125, the measured move implies a target well below the 121 level. Once there, the 120 round level will likely attract the price, as it acted as a pivotal level in the past.
Today it is all about the ECB and its press conference. While no one expects the ECB to act on the level of interest rates it sets (i.e. the ECB sets three interest rates – the deposit facility rate, the marginal lending facility rate and the interest rate on main refinancing operations), the ECB may surprise at the press conference.
The European Central Bank already has the deposit facility rate below zero, at -0.5%. Studies have shown that the positive effects of much lower negative rates tend to disappear. Also, a more effective way of delivering more easing is the increase in QE purchases. This is exactly what the ECB plans to do, and the big question is when will announce it – at today’s meeting or in December? Also, the size of the new buying program matters as well.
Lately, the EURJPY cross and other Euro pairs benefited from the strong demand for EUR generated by the issuance of the SURE bonds. The bonds were well received by the market, showing strong demand for the EUR debt. But that enthusiasm faded as we got closer to today’s ECB decision.
The double top at the 125 level suggests that the EURJPY has more room to decline further. The measured move, seen in light blue below, shows the potential for the cross to reach 120 and even more. As such, bearish traders may want to increase their EURJPY short exposure and target 120 with a stop at 123.50.
