FxWirePro: EUR/JPY minor trend honours hammer pattern, major downtrend shrugs-off – Trade one-touch call but uphold short hedge

Technical chart and candlestick patterns formed– EURJPY has seen mild interim price rallies that are intensified from the last couple of days on hammer formation at 116.235 level as the minor trend spikes above 21-DMAs. 

Bearish engulfing, gravestone doji and 3-black crow patterns nudge these prices below DMAs and EMAs (daily chart). On the contrary, hammer pattern candles popped-up at 116.235 (on the daily chart) and 124.601 levels (on the monthly term) that cause mild upswings in the short-term trend whereas, the major downtrend appears to be shrugging-off this bullish pattern. 

While both leading and lagging indicators substantiate weakness of the major downtrend and vice versa of the minor trend. Interim upswings are likely to extend 119.268 levels ahead of ECB’s monetary policy that is scheduled for this week.

While the major downtrend remains intact as the bearish engulfing evidences price drops below EMAs (refer monthly plotting). For now, weakness is most likely to prolong as the bearish swings are backed by both momentum oscillators as both RSI & stochastic curves show downward convergence to the prevailing price dips that signal bearish strength & the intensified selling momentum and weakness remains intact on the monthly terms.

Trade tips:On trading perspective, at spot reference: 118.540 levels, contemplating above technical rationale it is advisable to participate in the prevailing rallies and execute one-touch call option, using upper strikes at 119.268 levels, the strategy is likely to fetch leveraged yields as long as the underlying spot FX keeps spiking above upper strikes on the expiration.

Alternatively, we advocated shorts in futures contracts of mid-month tenors with a view to arresting potential dips, since further price dips are foreseen we would like to uphold the same strategy ahead of the ECB’s interest decision.