For those who follow exotics, the EUR/JPY could be poised to rally strongly in the next few days and could, therefore, be worth keeping an eye on. Specifically, the pair has a number of technicals currently in agreement that a reversal could be in the cards. As a result, the bulls are in the wings and ready to jump on the chance to bring the EUR/JPY higher.
As shown on the daily chart, the pair has been constrained within a bearish channel for some time. In fact, only recently the EUR/JPY unsuccessfully attempted to breakout on the downside. Asa testament to the failed breakout attempt, an inverted hammer candle has signalled that the pair may have finally reached a bottom.
As a consequence of the recent testing of the downside constraint, the EUR/JPY should now be ready to move back to challenge the upper constraint in the near future. Furthermore, the recent bearishness of the pair has now brought it into oversold territory. Combined, these two developments paint a fairly clear picture and suggest that the EUR/JPY could bounce back shortly.
Aside from the daily technicals, the formation of a bullish pennant on the H1 chart is likewise signalling that the pair should reverse. As shown on the below chart, price movement over the last few days has brought the pennant nearly to completion. Consequently, an upside breakout could be close to occurring.
Whilst the pair is likely to begin climbing, it is doubtful that the EUR/JPY is going to break through the upside constraint of the channel. This constraint is relatively robust, largely as a result of the dynamic resistance provided by the 100 day EMA. Additionally, this moving average has proven difficult to break on at least three prior occasions
On the fundamental front, like much of the market, the EUR/JPY will be eyeing the outcome of the Brexit referendum closely. Consequently, stay abridged of the outcome as whatever way the referendum goes, there is likely to be a large effect on any EUR cross.
Ultimately, the rampant uncertainty currently gripping the market makes technical analysis somewhat difficult. However, for those wishing to stay clear of majors or GBP crosses, the EUR/JPY’s technicals are looking fairly biased towards a short-term bullish stint. Specifically, the RSI readings and a bullish pennant pattern are hinting at some significant upside potential for this pair.