Yesterday, EUR/JPY made a session high at 136.12 and respected the 50-day SMA and eventually fell below the 200-day SMA (currently trades at 135.51).  The euro did not have a major reaction to Greece’s election, which yielded a win for PM Tsipras.  On Wednesday, we are expecting to hear ECB President Mario Draghi deliver his quarterly testimony.  It is expected for him to confirm his accommodative stance and to possibly to open the door for further easing. 

Price action on the EUR/JPY daily chart shows that the recent consolidation is breaking out lower and that we may see a major leg down.  Initial support may come from both 61.8% Fibonacci retracement level and the 127.2% Fibonacci expansion level of the B to C leg.  If downward pressure accelerates, major support may come from the psychological 130.00 handle, which is also where we may see a bullish Gartley pattern form.  If valid, we could see a decent rebound before bearish momentum returns and targets fresh 2015 lows. 

If the bearish move does not continue and we see price recapture the 136.50 level, we could see one last rally target the 140 area before a resumption of the targeted lower euro move. 

The trade: Buy EUR/JPY 135.50 with a stop loss at 136.50 and a take profit at 130.50.  The Risk/Reward Ratio is 1:5. 

Edward J. Moya

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