Earlier in London, EUR/JPY benefited from short covering on bearish euro bets. The currency also surged toward the 200-day SMA after German IFO Business climate for July beat expectations with a 108.0 print. If data continues to improve from Europe’s largest economy, we could see the euro rebound strongly.
Price action on the EUR/JPY daily chart shows the key respect of the 50.0 Fibonacci retracement level of the 126.08 low to 141.04 high move. Over the past week, price is in the midst of a strong rebound that if it is able to rally above both the 50- and 200-day SMA, we could see price extend to the 137.78 level.
If the longer-term bearish resumes and price collapses towards the 100-day SMA, which is trading around the 133.75 area, we could eventually one last major freefall target the 130.50 zone. It is around that area that we could see a bullish Gartley pattern form. Point D of the reversal pattern would be targeted by the 70.7% Fibonacci retracement of the X to A leg and the 161.8% Fibonacci expansion level of the B to C leg.
The trade: Buy EUR/JPY 137.50 with a stop loss at 137.00 and a take profit at 139.50. The Risk/Reward Ratio is 1:4.
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading