EURJPY Correction Underway

The 130.69 breakout trade in EURJPY traded as high as the 134.42 level. Price is now starting to correct lower, with the RSI coming off and the MACD having turned bearish, risks of a deeper correction are building. Below the 133.13 level, the bear target is the rising channel low and the 132.02 level. Longer term, while the 132.02 level holds, the bull channel remains intact and I will be monitoring that area for bullish entry signals, targeting a continuation towards 135.68 and above.

Key Data to Watch

The main event risk this week is of course the June ECB meeting. The big question over the year so far has been whether the ECB will begin tapering this year. Given the improving fundamental backdrop and rising inflation expectations, traders are focusing on whether the ECB will announce a reduction in bond purchases this week. If it does so, EUR is likely to reverse firmly higher.

However, if purchases are maintained, EUR is likely to come off. The extent of the move in either direction will depend on the forward guidance offered. If the ECB downplays upside economic risks and focuses on remaining uncertainty, this should keep EUR upside limited. A deeper acknowledgement of upside risks, however, could see EUR firmly higher.

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