EURJPY Short-Term Range (Feb 2, 2015)

Price has just bounced off support at the bottom of the range and may be due for a test of the resistance once more.

If the top of the range holds, price could head back to the bottom once more and continue moving sideways. Stochastic is already indicating overbought conditions, although it hasn’t crossed down yet and reflected a pickup in selling pressure. The pair could still have enough upside until the 134.00 mark before heading back south.

However, an upside break could still be possible if risk sentiment picks up. This could lead to a strong break past 134.00, which might signify further gains for EURJPY. Take note that the rectangle pattern is roughly 150 pips in height, which means that the resulting rally could be of the same size.

Event risks for this range trade include the release of Spain’s employment change report and manufacturing PMI. Italy is also set to print its manufacturing PMI today before the euro zone region releases its final PMI. Strong data could lead to more gains for the euro and a potential upside break while weak data could spark an early selloff.

There are no event risks lined up from Japan today, although last week’s set of reports suggests that the economic picture is worsening in the country. This could keep risk-taking in check and continue to favor the lower-yielding Japanese yen unless BOJ officials start entertaining the idea of further easing.

With that, the path of least resistance is still to the downside, as the euro zone economy is faring much worse than Japan. Risk aversion could also keep the Japanese yen supported for the time being.

By Kate Curtis from Trader's Way