EUR/JPY Into A Continuation Pattern With Bullish Bias

EUR/JPY is still bullish despite the last drop. A temporary decline was likely to be expected after the last swing higher. The pair has developed a continuation pattern, so the bias is still bullish. Breaking from this formation could activate a new upwards movement and could bring us new opportunities.

The pair has registered an important rally in the short-term as the JP225 (Nikkei) has resumed its growth. We have a correlation, so when the Japanese stock index grows, we could expect this to be a signal for the Yen to depreciate. 

Fundamentally, the euro received a helping hand from the eurozone Industrial Production. The indicator has increased by 0.8%, exceeding 0.4% growth expected. Unfortunately, the eurozone Trade Balance was reported at 9.4 billion well below the 14.9 billion estimate earlier today. 

The unadjusted trade surplus  was 10.9 billion euros in April compared with 2.3 billion in April 2020, with total eurozone exports up 43% and imports falling 37%.

Eurozone economy rebounding but Japan lacklustre

Machinery exports were up 11.9% in the first four months of the year. However, the bloc’s trade deficit with China grew wider. China is the EU’s largest trading partner. On the other hand trade surpluses with the UK and US narrowed.

Trade between the eurozone and the UK has dropped dramatically since Brexit are the UK’s exit from the internal market. However, the surplus increased because of the growing gap between declining imports, with imports from the UK down 27% between January and April, and the lower fall in exports, which were down by only 3.3%.

Suffice to say then, that the eurozone economy continues to strengthen, although Japan remains a laggard in its rebound.

It remains to be seen how EUR/JPY will react on Thursday after the eurozone Final CPI and Final Core CPI data will be published. Furthermore, the BOJ could shake the markets a little on Friday morning. 

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EUR/JPY Technical Analysis

EUR/JPY is trapped within a down channel and also inside of the minor descending pitchfork’s body (see chart below). It has failed to stabilize below the median line (ml) and traders will now that it is right below the upper median line (uml). 

Also, its failure to stabilize under the 23.6% retracement level signals that the correction could be over. Still, we’ll have to wait for an upside breakout from this pattern and through the upper median line (uml) to be sure that EUR/JPY resumes its major uptrend.

In the short term, EUR/USD could move sideways before really confirming an upside continuation. The immediate downtrend line and the upper median line (uml) are seen as strong resistance levels. So, we cannot exclude a temporary decline.

A new higher high, a bullish closure above 133.68, could represent a first signal that EUR/JPY may resume its uptrend.

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