EUR/JPY Daily Timeframe

Technical Outlook: EUR/JPY has continued to trade within the confined of this broad ascending pitchfork formation extending off the July 2016 lows. The pair is consolidating within its initial monthly opening range after encountering confluence resistance earlier this month at 130.69. Near-term support rests with the monthly open at 127.96 and the focus is on a break of this range heading into the close of July trade.

A topside breach targets a sliding parallel extending off the December highs which converges on the 2016 high at 132.29, backed by the 61.8% retracement at 134.29. A break below highlighted slope support risks a larger scale correction in the pair with such a scenario targeting the 127-handle backed by 125.67 & the median-line / 38.2% retracement at 124.69(broader bullish invalidation).

EUR/JPY 120min Timeframe

Notes: A closer look at price action highlights the consolidation seen since the monthly open. Interim resistance stands at 129.75 backed by basic trendline resistance, currently ~130.40s. Immediate support rests at 128.89. From a trading standpoint, I’ll favor selling rallies while within this range but ultimately we’ll be looking for a larger pullback to offer more favorable long-entries. Added caution is warranted heading into inflation releases from Japan and Germany this week with the events likely to fuel increased volatility in their respective crosses.

• A summary of IG Client Sentiment shows traders are net-short EUR/JPY- the ratio stands at -2.33–bullish reading
• Retail has been net-short since April 25- Price has moved 11.3% higher since
• Long positions are 9.6% lower than yesterday but 4.9% higher from last week
• Short positions are 10.1% higher than yesterday and 19.9% lower from last week
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/JPY prices may continue to rise. That said, positioning is more net-short than yesterday but less net-short from last week and the combination of current sentiment and recent changes gives us a further mixed near-term trading bias.
• Bottom line: Sentiment is coming off extremes and highlights the near-term risk to this advance. Ultimately, I would be looking to fade a pullback in the pair targeting a breach of the 2016 highs.