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FxWirePro: Snap deceptive EUR/JPY rallies on double top formation – Trade tunnel spreads and uphold short hedge ahead of ECB

Technical chart and candlestick patterns formed: EURJPY’s gravestone doji has occurred at 122.020 levels that nudge below 7 & 21-DMAs again. Thereby, the downswings may develop the double top pattern with top 1 at 123.175 and top 2 at 123.357 levels (refer daily plotting).

While both leading and lagging indicators substantiate the weakness. Although we see mild price recoveries for today, the weakness is quite visible upon a flurry of bearish indications, the trend for the day likely to be absolutely edgy with renewed weakness at around 7DMA levels.

On a broader perspective, the current major downtrend is most likely to prolong bearish swings that are backed by both momentum oscillators as both leading indicators (RSI & stochastic curves) show downward convergence that signal bearish strength and the intensified selling momentum and weakness remains intact on the monthly terms.

While hammer pattern candle pops-up at 124.601 levels, whereas bears hamper upswings below 7EMAs, consequently, prices have plummeted as the bears have staged for multi-months’ lows, accordingly, bearish trade setup is advocated as the major downtrend shrugs-off hammer(refer monthly chart).

Trade tips: On trading perspective, at spot reference: 121.122 levels, it is advisable to trade tunnel option spreads, using upper strikes at 121.313 and lower strikes at 120.918 levels, the strategy is likely to fetch leveraged yields as long as the underlying spot FX remains above lower strikes on the expiration.

Alternatively, ahead of ECB monetary policy meeting, we advocated shorts in futures contracts of mid-month tenors with a view to arresting potential dips. We now wish to roll over these contracts for August month deliveries.

By Niranjan Patil
  • Market Data
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