The EURJPY has been trading in a rectangular chart pattern as visible in this H4 chart. This currency pair has now reached its horizontal resistance level and price action has been confined within the upper and lower levels of its resistance zone. The last H4 candlestick has formed an inverted hammer which is another bearish signal. We expect this currency pair to correct back down to its horizontal support level which is also enforced by the EURJPY 200 DMA.
MACD has confirmed the rally from support to resistance, but indicates that bullish pressures are much weaker than during the last rally which is a sign of weakness. We expect MACD to complete a bearish centerline crossover during the next correction. RSI is trading in neutral territory after completing a breakdown from overbought territory. We expect RSI to reach oversold territory.
We recommend a short position at 130.75 with a potential second entry level at 133.25. We also recommend a stop buy order at 131.50 in order to hedge the initial short position and before adding new shorts to this trade.
Traders who wish to close this currency trade at a loss are advised to place their stop loss order at 132.00. We will not use a stop loss order and execute this trade as recommended. Place your take profit level at 127.75.
Here are the reasons why we call the EURJPY currency pair lower
- EURJPY is trading at horizontal resistance levels of its rectangular chart formation
- Last H4 candlestick formed an inverted hammer at resistance which is a bearish signal
- MACD indicates very weak bullish pressures prone to a reversal and bearish centerline crossover
- RSI already broke down from overbought territory and we expect a further contraction
- Profit taking after a good rally in order to realize profits
- New short positions by institutional swing traders
- Weakness out of the Eurozone